27G& 


i^Kh 


■■ -: '•■■•■.-  v 
*wSiS 

B$m$3ul£ 

mBSos 


■'.-.  .-'■     ■■   . .  •;    ■■•■ 

Wmmm 

8    H  i;:  PI  : 


HI 

JsShsSI 

'•:■••-..■■■'■ 


(ANCHOfl 


ill,,/.::/ 


[Reprinted  from  the  New  Englander  for  July,  1878. 


THE  PACIFIC  RAILROADS  AND  THE  GOVERNMENT. 


By  HENRY  T.  BLAKE,  Esq. 


THE  PACIFIC  RAILROADS  AND  THE  GOVERNMENT. 


Debates  in  Congress  on  Charter  and  Laws  relating  to  Pacific  Rail- 
road Companies  (Congressional  Globe,  1862  to  1869). 

Report  of  Wilson   Committee  on  the  Union  Pacific  R.  R.  Co.  and 
the  Credit  Mobilier,  to  U.  S.  House  of  Representatives  (1873). 

Report  of  Poland  Committee  to  same  (1873). 

Debate  in  U.  S.  Senate  on  bills  relating  to  Pacific  Railroads  (Con- 
gressional Record,  1877-8). 

Arguments  before  Senate  Judiciary  Committee  on  Senate  Bill  No. 
15  (November,  1877). 

Judicial  Decisions  and  Executive  Documents  relating   to  Pacific 
Railroads. 

The  first  movements  for  a  Railroad  to  the  Pacific  were  made 
as  early  as  1846  by  M.  Asa  Whitney,  who  by  lectures  and 
writings  awakened  the  public  attention  and  created  a  general 
interest  in  the  subject.  His  idea  was  that  the  Government 
should  build  the  road,  and  the  probable  cost  was  estimated  by 
him  at  about  one  hundred  millions  of  dollars.  After  the  dis- 
covery of  gold  in  California  a  new  interest  was  aroused,  owing 
to  the  growing  importance  of  that  region,  and  especially  by  the 
enormous  migration  thither  at  a  frightful  cost  of  money  and  of 
life.  In  February,  1849,  Senator  Benton  had  already  intro- 
duced a  bill  in  Congress  to  provide  for  preliminary  surveys  of 
three  different  routes,  the  Northern,  Middle,  and  Southern. 
The  bill  was  passed  and  the  surveys  were  completed  by  1856. 
All  the  routes  were  found  to  be  feasible,  and  each  had  its  own 
strenuous  advocates.  The  great  cost  of  the  undertaking,  how- 
ever, and  the  extreme  improbability  that  such  a  road  running 
for  nearly  2,000  miles  through  desolate  regions  of  desert  and 
mountain,  would  ever  pay  even  running  expenses,  deterred  the 
Government  and  far  more  private  parties  from  the  thought  of 


1878.]         The  Pacific  Railroads  and  the  Government  491 

undertaking  its  construction  ;  especially  after  the  completion  of 
the  Panama  Railroad  had  rendered  travel  and  transportation 
between  the  East  and  California  comparatively  convenient  and 
expeditious. 

The  civil  war,  however,  developed  a  new  and  pressing  neces- 
sity for  direct  and  rapid  overland  communication  between  the 
Missouri  River  and  the  Pacific  coast.  Travel  by  sea  was  lia- 
ble to  interruption,  in  fact  was  interrupted  by  rebel  cruisers, 
and,  in  case  of  war  then  seriously  threatened  with  foreign  pow- 
ers, might  become  entirely  unavailable.  The  situation  of  Cali- 
fornia and  of  Oregon,  therefore,  as  part  of  our  territory  was  pre- 
carious. If  war  should  occur  with  England  or  France,  they 
were  liable  to  be  wrested  from  us  without  possibility  of  preven- 
tion. It  was  even  feared  that  the  great  distance  and  compara- 
tively isolated  position  and  interests  of  the  Pacific  coast  might 
awaken  among  its  then  unsettled  and  excitable  population  the 
desire  of  independence  as  a  Western  Empire,  commanding  the 
commerce  of  the  Pacific  and  the  East.  Nor  was  this  an  imag- 
inary danger.  The  Californian  representatives  in  Congress 
demanded  a  railroad  as  a  political  and  commercial  necessity — 
essential  to  the  prosperity,  if  not  to  the  loyalty  of  that  new 
State.  In  a  military  aspect  it  was  an  object  of  primary  impor- 
tance, not  merely  for  the  safety  of  the  Pacific  coast,  but  in 
order  to  control  the  Indians  of  the  Plains,  and  the  Mormons,  at 
that  time  the  avowed  enemies  of  the  United  States,  and  who 
had  already  waged  against  it  a  troublesome  and  costly  war. 
Even  in  times  of  ordinary  tranquillity,  the  transportation  of 
troops  and  the  mails  was  costing  from  seven  to  eight  millions 
annually,  and  was  extremely  tedious  and  difficult.  All  these 
considerations  weighed  heavily  on  the  public  mind,  and  before 
the  civil  war  had  continued  for  a  year,  the  necessity  for  a  rail- 
road had  become  manifest  to  all,  and  speedy  and  energetic 
action  was  demanded  on  all  sides  to  carry  out  the  enterprise 
which  in  times  of  peace  might  have  lingered  long  and  fruit- 
lessly in  the  halls  of  Congress. 

But  there  were  difficulties  in  the  very  inception.  For  the 
Government  to  build  and  operate  a  costly  railroad  was  obvi- 
ously impracticable.  The  work  must  be  done  and  the  road 
operated  by  private  parties,  and  no  private  parties  had  even  sug- 


492  The  Pacific  Railroads  and  the  Government.  [July, 

gested  any  desire  or  willingness  to  undertake  it.  The  time  too 
was  unpropitious  for  inviting  private  attention  to  the  enterprise. 
It  was  in  1862  when  gold  and  prices  were  whirling  upward 
every  day — when  taxes  were  rapidly  growing  to  enormous  pro- 
portions— when  the  future  existence  of  the  nation  was  trem- 
bling in  the  balance,  and  in  case  of  separation  the  division  line 
across  the  continent  was  uncertain.  Millions  of  money  must 
be  risked  on  chances  like  these  to  construct  a  road  of  1,500 
miles  in  length  across  an  unknown  wilderness,  overrun  by  hos- 
tile savages,  destitute  of  stone,  of  timber,  of  water  even,  and  of 
supplies  of  every  kind.  Unknown  years  must  be  expended  in 
the  mere  work  of  construction,  and  it  was  believed  that  under 
the  most  favorable  circumstances  many  more  must  elapse  before 
the  business  of  the  road  would  pay  even  its  running  expenses. 
Not  a  very  brilliant  prospectus  this  to  set  before  the  capitalists 
whose  aid  was  wanted  for  the  work  ! 

Nevertheless  Congress  determined  to  make  the  attempt,  and 
by  the  act  of  July  1,  1862,  created  a  corporation  under  the 
name  of  the  Union  Pacific  Railway  Company,  to  construct  a 
railroad  and  telegraph  to  the  Pacific  coast. 

It  is  a  striking  illustration  of  the  absence  of  any  private  con- 
fidence or  interest  in  the  work,  that  the  corporation  was  char- 
tered before  the  corporators  were  selected.  After  the  terms  of 
the  charter  were  settled,  the  names  of  150  persons  were  sug- 
gested at  random  in  Congress  by  States,  without  previous 
notice  to  such  persons,  or  any  assurance  that  the  nominees 
would  accept  the  position.  The  corporators  were  selected 
with  reference  to  known  capital,  ability,  and  enterprise,  and 
provision  was  made  for  calling  the  first  meeting  at  Chicago. 
By  the  terms  of  the  act  the  capital  of  the  corporation  was 
fixed  at  $100,000,000,  but  it  might  commence  business  when 
$2,000,000  were  subscribed,  and  $200,000  paid  in.  To  aid 
in  the  construction  of  the  road  and  telegraph,  a  subsidy  of 
government  bonds  was  voted  to  the  company,  to  be  issued  as 
each  forty  miles  of  road  was  completed,  at  the  rate  of  $16,000 
per  mile  from  the  Missouri  River  to  the  Rocky  Mountains, 
$32,000  per  mile  from  that  point  to  the  Sierra  Madre,  and 
$48,000  per  mile  in  the  most  difficult  part  of  the  way  beyond. 
Besides  this  a  land  grant  was  given  of  ten  alternate  sections  of 


1878.]  The  Pacific  Railroads  and  the  Government.  493 

640  acres  each  per  mile.  The  government  bonds  were,  how- 
ever, to  constitute  a  first  mortgage  on  the  road,  and  to  be 
repaid  with  interest  at  maturity,  i.  e.,  in  thirty  years. 

The  first  meeting  of  the  corporation  was  held  in  the  fall  of 
1862.  Of  the  one  hundred  and  fifty  corporators  named  a  con- 
siderable proportion  declined  to  act,  fearing  to  embark  in  the 
enterprise.  From  those  who  did  accept,  the  necessary  subscrip- 
tion of  two  millions,  and  the  payment  of  ten  per  cent,  thereon, 
was  not  obtained  until  October,  1863,  and  only  with  great  exer- 
tion and  difficulty.  The  construction  of  the  road  had  not  then 
been  commenced,  and  the  prospect  was  far  from  encouraging. 
During  1863  the  war  had  grown  in  dimensions,  and  the  politi- 
cal situation  was  still  extremely  critical.  Grold  and  prices 
had  reached  a  fabulous  figure.  The  army  had  drawn  off  labor- 
ers until  there  were  not  enough  left  to  till  the  fields.  The 
financial  sky  was  troubled  and  gloomy,  and  capitalists  were 
more  unwilling  than  even  in  1862  to  make  large  contracts  and. 
great  expenditures  with  reference  to  distant  and  uncertain 
returns.  Early  in  the  session  of  1863-4,  the  Special  Committee 
on  the  Pacific  Railroads  informed  the  House  of  Eepresentatives 
that  after  full  and  careful  inquiry  during  the  recess,  they  were 
convinced  that  the  necessary  capital  to  build  the  road  could, 
not  be  had  without  a  greater  assistance  from  the  Government 
than  was  granted  by  the  act  of  1862,  and  unanimously  reported 
a  bill  for  that  purpose,  which  passed  with  little  opposition, 
and  is  now  known  as  the  act  of  1864.  By  this  act  the  gov- 
ernment bonds  were  made  a  second  mortgage  on  the  road 
and  telegraph  line,  instead  of  a  first  mortgage,  as  before,  and 
the  corporation  was  authorized  to  issue  its  own  first  mort- 
gage bonds  to  an  equal  amount — the  land  grant  was  also 
doubled,  by  giving  twenty  alternate  sections  12,800  acres 
instead  of  ten  per  mile  of  road.  An  examination  of  the 
debates  over  this  measure  shows  strongly  the  great  anxiety 
of  Congress  to  secure  the  building  of  the  road  and  its  fear 
that  after  all  the  enterprise  would  fail.  Mr.  Wilson  (afterwards 
Vice-President)  was  u  ready  to  vote  fifty  millions  or  one  hun- 
dred millions  out  and  out,1'  if  that  would  ensure  its  construc- 
tion. Mr.  Washburn,  who  opposed  the  grant  (and  others  on 
the  same  side),  did  so  on  the  ground  that  the  corporation  would 


494  TJie  Pacific  Railroads  and  the  Government.  [July, 

pocket  all  the  money  it  could  get,  and  never  complete  the 
work.  President  Lincoln,  in  private  conversations  with  mem- 
bers of  Congress,  declared  that  if  it  was  left  to  him  he  would 
give  the  government  bonds  outright  and  a  great  deal  more. 
On  all  sides  it  was  agreed  that  the  work  was  one  of  the  highest 
importance  to  the  country  and  the  Government,  but  that  its 
construction  was  doubtful,  and  its  success  as  a  profitable  pecu- 
niary enterprise  not  to  be  expected. 

As  this  act  of  1864,  enlarging  the  original  government  grants 
to  the  roads  has  been  again  and  again  referred  to  in  public 
debates  and  writings,  as  "  unparalleled  in  the  history  of  legis- 
lation" in  the  way  of  generous  and  lavish  gifts  to  a  private 
enterprise,  it  will  be  well  to  inspect  it  for  a  moment  before  pro- 
ceeding farther.  If  it  was  regarded  at  the  time  as  a  bonanza 
of  wealth  to  the  corporation,  it  is  singular,  to  say  the  least, 
that  for  nearly  three  years  after  the  passage  of  the  act,  all  the 
prominent  capitalists  of  the  country  and  thousands  of  others 
were  besieged  in  vain  to  take  stock  in  the  enterprise.  Possi- 
bly this  may  not  appear  so  singular  after  examination  of  the 
act. 

The  grants  from  the  Government  (besides  the  right  of  way) 
were  of  two  kinds ;  government  thirty-year  bonds  and  alter- 
nate sections  of  land.  The  government  bonds  were  well  under- 
stood to  be  entirely  insufficient  to  build  the  road  and  telegraph, 
as  is  shown  by  the  authority  given  to  the  corporation  to  issue 
its  own  first  mortgage  bonds  to  an  equal  amount,  and  the  obli- 
gation imposed  upon  it  to  subscribe  and  pay  for  stock  enough 
to  complete  the  work.  Owing  to  the  exceptional  circumstances 
already  referred  to,  the  cost  of  the  work  was  expected  to  be 
enormously  greater  than  of  ordinary  roads  in  ordinary  times, 
and  nobody  could  predict  how  much.  The  government  bonds 
too  being  currency  bonds,  must  be  sold  at  a  great  depreciation, 
so  that  the  cash  realized  would  be  much  less  than  their  face, 
while  they  must  be  paid  in  thirty  years,  principal  and  interest, 
at  their  face  value.  As  the  construction  of  the  work  was 
expected  to  take  from  ten  to  twelve  years  (twelve  years  was  the 
time  allowed),  there  would  remain  after  the  road  was  in  opera- 
tion only  about  twenty  years  to  earn  the  sixty  or  seventy  mil- 
lions, more  or  less,  which  would  be  needed  to  take  up  the  first 


1878.]  The  Pacific  Railroads  and  the  Government.  495 

mortgage  and  government  bonds,  besides  paying  the  annual 
interest  of  two  or  three  millions  or  more  on  the  funded  debt. 
As  it  was  doubtful  whether  the  road  would  even  pay  operating 
expenses,  where  was  the  inducement  to  subscribe  for  the  stock  ? 
Not  in  the  land  grant,  for  although  some  of  the  land  was 
known  to  be  good  and  likely  to  be  marketable  after  the  road 
was  opened,  yet  there  were  also  vast  regions  of  alkali  deserts 
and  mountain  ranges,  where  it  was  utterly  worthless,  and  what 
proportion  the  good  land  bore  to  the  bad  no  one  knew.  More- 
over the  lands  could  not  be  held  for  a  future  rise  in  value,  for 
by  the  terms  of  the  grant,  in  three  years  after  the  road  was  com- 
pleted, all  lands  not  sold  or  disposed  of,  were  to  be  subject  to 
preemption  at  $1.25  per  acre.  Besides  these  drawbacks  to  the 
offers  held  out  by  the  Government  for  stock  subscriptions,  there 
were  conditions  imposed  that  were  not  to  be  disregarded.  The 
act  required  that  the  railroad  should  be  constructed  in  all 
respects  as  a  first-class  road,  with  all  necessary  drains,  culverts, 
viaducts,  crossings,  sidings,  bridges,  turnouts,  watering  places, 
depots,  equipments,  furniture,  and  all  other  appurtenances,  the 
rails  and  all  other  iron  used  in  its  construction  and  equipment 
to  be  American  manufacture,  of  the  best  quality.  It  provided 
that  the  road  should  be  built  in  sections  of  twenty  miles  each, 
and  that  each  section  should  be  approved  by  three  govern- 
ment  commissioners,  before  the  bonds  for  it  should  be  issued, 
or  the  land  patents  be  given.  Twelve  years  and  no  more  were 
allowed  for  the  completion  of  the  road  and  telegraph,  and  in 
case  of  failure  even  for  a  day,  beyond  that  period,  the  whole 
vast  property,  with  all  its  rights  and  franchises,  and  estate  of 
every  name  and  nature  was  to  be  forfeited  to  the  Government. 
For  unreasonable  delay  in  the  work  its  income  could  be  confis- 
cated. One-half  of  the  Government  dues  for  transportation 
services  was  to  be  retained  annually  by  the  Government,  and 
five  per  cent,  of  the  whole  net  earnings  of  the  road  was  to  be 
annually  paid  over  to  it  in  addition.  In  case  dividends  of  ten 
per  cent,  on  the  stock  should  ever  be  reached,  Congress  reserved 
the  right  to  interfere  with  the  rates  of  freight  and  fare.  And 
finally,  if  the  corporation  should  fail  to  pay  to  the  Government 
at  the  maturity  of  its  thirty-year  bonds  (that  is  to  say,  as  we 
have  already  seen,  in  some  twenty  years  after  the  opening  of 


496  The  Pacific  Railroads  and  the  Government.  [July, 

the  road),  the  whole  amount  then  due  on  the  government  bonds, 
principal  and  interest,  then  also  the  road,  with  all  its  property 
and  privileges,  by  such  default  was  to  become  the  property  of 
the  United  States,  and  was  to  be  taken  possession  of  at  once 
by  the  Secretary  of  the  Treasury ;  supposing,  indeed,  that  it 
had  not  already  been  appropriated  by  its  first  mortgage  bond- 
holders, which  seemed  extremely  probable. 

In  estimating  the  liberality  and  generosity  of  the  Govern- 
ment, therefore,  in  its  grants  to  the  road,  it  is  not  to  be  over- 
looked that  it  was  expecting  to  receive  for  them  tenfold  more 
than  their  value,  and  was  also  securing  itself,  to  no  insignifi- 
cant extent,  against  even  a  pecuniary  loss.  The  road,  if  built, 
would  be  of  infinitely  more  value  to  the  Government  than  the 
grants,  even  if  it  never  repaid  a  dollar.  But  the  enhanced  val- 
uation of  the  government  lands  and  its  saving  in  cost  of  trans- 
portation, were  sure,  of  themselves,  to  indemnify  it,  and  there 
was  its  second  mortgage  lien  besides.  It  could  not  possibly 
lose,  therefore,  and  must  inevitably  be  an  enormous  gainer  by 
the  construction  of  the  road,  while  the  stockholders,  who  had 
only  pecuniary  profits  to  entice  them,  would  run  enormous 
risks  of  losing  every  penny  of  their  investment. 

The  changes  made  in  the  charter  by  the  act  of  1864  never- 
theless inspired  confidence  in  some  of  the  stockholders  already 
secured,  notwithstanding  the  risks  incurred,  to  go  on  with  the 
work.  The  great  majority,  however,  still  feared  to  venture. 
It  was  owing  largely,  if  not  mainly,  to  the  courage,  energy,  and 
persistence  of  two  individuals,*  at  this  time  and  for  months 
afterward  that  the  work  went  on.  From  three  to  four  millions 
cash  was  needed  to  meet  the  expenses  of  preliminary  surveys, 
organizing  and  commencing  the  work,  and  to  raise  this  sum 
and  to  carry  on  the  construction  these  persons  with  others  put 
forth  the  most  arduous  efforts,  pledging  their  own  credit  to  its 
utmost  and  appealing  to  more  prudent  capitalists,  mostly  in 
vain.  Up  to  the  end  of  1864  very  little  progress  had  been 
made,  and  the  enterprise  seemed  in  danger  of  abandonment. 
Many  subscribers  to  the  stock  refused  payment  of  the  second 
installment.  More  efforts  were  put  forth  to  bring  in  capitalists 
in  New  York  and  elsewhere  in    vain.     In    1865  the  Credit 

*  T.  C.  Durant  and  C.  S.  Bushnell. 


1873.]  The  Pacific  Railroads  and  the  Government.  497 

Mobiler  was  organized  and  some  new  parties  were  brought  in, 
and  by  ''superhuman  efforts"  of  all  the  parties  in  interest 
enough  more  money  was  raised  to  carry  on  the  work  to  the 
end  of  1866.  At  that  time  the  road  had  been  built  from 
Omaha  to  the  100th  meridian,  240  miles.  The  work  had  been 
so  far  carried  on  with  great  difficulty  and  at  a  heavy  loss  not- 
withstanding the  government  subsidies.  The  public  confidence 
in  the  enterprise  was  so  small  that  the  company  had  not  been 
able  to  sell  a  dollar  of  its  first  mortgage  bonds  up  to  1867. 
The  funds  had  again  given  out  and  the  stockholders  were  dis- 
couraged. Again  a  desperate  effort  was  put  forth  to  get  new 
subscribers  ;  not  to  the  Union  Pacific  Company  directly,  but 
indirectly  through  subscription  to  the  Credit  Mobilier  (which 
held  the  contract  of  construction),  the  stock  of  which  was 
offered  to  every  one  who  was  thought  likely  to  take  it  at  almost 
any  price  from  ninety  up  to  par.  In  this  way  funds  enough 
were  obtained  in  1867  to  carry  the  work  along.  During  this 
year  245  miles  were  built,  and  now  came  a  great  and  sudden 
turn  of  affairs — a  new  route  had  been  found  over  the  Black 
Hills  where  the  hardest  part  of  the  work  had  been  expected, 
and  for  which  the  largest  appropriations  had  been  made.  By 
the  new  route  the  road  could  be  built  over  the  mountains  at  a 
cost  no  greater  than  over  the  plains,  and  now  it  began  to  be 
evident  that  the  profits  on  this  part  of  the  work  would  be  large. 
Henceforth  there  was  no  difficulty  about  money  and  the  con- 
struction went  on  with  abundant  means  and  at  a  rapid  rate.  In 
the  mean  time  the  Central  Pacific  Company,  aided  by  a  special 
subsidy  of  over  a  million  of  dollars  from  the  State  of  Cali- 
fornia and  the  newly  applied  Chinese  labor,  was  pushing 
rapidly  forward  from  the  western  end,  and  now  began  a  rivalry 
between  the  two  companies,  each  striving  to  obtain  the  greatest 
length  of  line,  and  their  emulation  and  marvellous  activity 
attracted  the  attention  of  the  whole  world.  The  cost  of  this 
rapid  construction  was  enormous,  and  it  was  embarrassed 
besides  by  the  special  difficulties  which  attended  nearly  the 
whole  building  of  the  roads.  Hostile  Indians  had  to  be  fought 
off  without  the  aid  of  troops.  Every  pound  of  corn,  hay  and 
grain  had  to  be  carried  from  100  to  600  miles.  Even  the 
drinking  water  and  the  water  for  making  steam  had  to  be 


498  The  Pacific  Railroads  and  the  Government.  [July, 

transported.  Wood  cost  $26  per  cord.  Iron  rails  $160  per 
ton.  Ties  from  $2  to  $5  a  piece.  Locomotives  (costing  now 
$7,000)  cost  $35,000.  Such  had  been  the  prices  even  when 
their  bonds  were  selling  with  difficulty  at  from  60  to  80  per 
cent,  and  gold  was  at  222.  But  these  extravagant  burdens 
(arising  from  the  haste  to  complete  the  work)  had  their  com- 
pensation. By  that  haste  the  time  of  construction  was  shortened 
seven  years,  so  that  instead  of  opening  the  roads  for  transporta- 
tion in  July,  1876,  they  were  actually  opened  May  9,  1869. 
This  great  saving  of  time  reduced  the  interest  account  on  their 
funded  indebtedness.  Had  the  whole  twelve  years  been  taken 
the  companies  would  have  been  ruined  by  the  burden  of  their 
interest.  Had  not  the  new  route  over  the  Black  Hills  been 
unexpectedly  discovered  the  Union  Pacific  Company  would 
have  been  bankrupt  long  before  the  work  was  completed,  and, 
but  for  the  unexpected  resource  of  Chinese  cheap  labor,  a  simi- 
lar disaster  would  have  overtaken  the  Central  Pacific  at  the 
other  end  of  the  route.  By  such  narrow  chances,  for  which, 
they  were  in  no  way  indebted  to  the  Government,  did  these 
corporations  save  their  investments  from  ruin  and  their  property 
from  forfeiture  and  confiscation. 

During  the  construction  of  the  roads  the  relations  of  the 
companies  with  the  Government  and  its  agents  were  for  the 
most  part  harmonious ;  nevertheless  the  Union  Pacific  Com- 
pany complained  of  an  act  of  Congress  passed  in  1866,  in  the 
midst  of  their  embarrassments,  which  very  seriously  impaired 
their  prospects  for  business,  and  created  a  formidable  com- 
petitor in  a  rival  and  parallel  road. 

By  the  acts  of  1862  and  1864  there  was  chartered  as  the 
southerly  feeder  of  the  Union  Pacific  Koad,  a  railroad  under 
the  name  of  the  Union  Pacific  Eailroad  Eastern  Division,  to 
start  from  Kansas  City  and  to  run  northwestwardly  some  270 
miles,  until  it  united  with  the  Union  Pacific  Eoad  at  the  100th 
meridian.  The  same  subsidies  in  lands  and  bonds  were 
allowed  to  this  feeder  as  to  the  main  line.  The  construction 
of  this  road  was  commenced  by  a  separate  company ;  which, 
however,  soon  determined  to  abandon  the  original  route  as  a 
Union  Pacific  feeder  and  to  run  their  road  westwardly  parallel 
with  the  Union  Pacific  Koad  to  Denver,  a  distance  of  638  miles. 


1878.]  Tlie  Pacific  Railroads  and  the  Government.  499 

In  1866  they  succeeded,  against  the  remonstrances  of  the  Union 
Pacific  Company,  in  obtaining  the  sanction  of  Congress  to  this 
diversion  and  took  the  new  name  of  the  Kansas  Pacific  Koad. 
The  Union  Pacific  Company  protested  that  this  Congressional 
charter  to  a  rival  road  was  ill-timed  and  not  in  good  faith  to 
their  interests,  and  that  it  would  cause  a  loss  to  themselves  of  a 
million  of  dollars  a  year,  and  such  has  proved  to  be  the  case. 
In  this  Kansas  Pacific  Koad  the  Government  invested  over  six 
millions  of  government  bonds  and  six  million  acres  of  land. 
The  whole  road  cost  about  thirty-four  millions  of  dollars.  It 
has  never  paid  expenses  or  barely  paid  them,  and  in  1873 
owing  to  the  continued  refusal  of  the  Government  to  pay  its 
dues  for  transportation  the  company  defaulted  its  interest.  It 
finally  went  into  the  hands  of  a  receiver  in  November,  1876, 
and  will  doubtless  be  foreclosed  by  the  first  mortgage  bond- 
holders. Thus  the  act  of  Congress  in  setting  up  this  rival 
road  while  it  diminished  the  ability  of  the  Union  Pacific  to 
repay  the  government  interest  and  advances  by  a  million  of 
dollars  a  year,  resulted  in  a  bankrupt  company  and  the  entire 
loss  to  the  Government  of  ten  or  twelve  millions  in  bonds  and 
lands,  besides  creating  sources  of  controversy  and  vexation,  to 
be  referred  to  hereafter. 

In  1869,  as  the  roads  approached  completion  and  it  was 
known  that  large  profits  were  being  realized,  blackmail  politi- 
cians and  officials  began  to  swarm  around  them  and  to  levy 
their  various  forms  of  tribute,  and  among  these  gentry  appeared 
an  occasional  government  commissioner,  whose  duty  it  was  to 
inspect  and  report  upon  each  section  of  completed  road  before 
the  government  subsidies  on  that  section  could  be  realized. 
Shortly  before  Jan.  1,  1869,  when  eighty  miles  had  been  com- 
pleted, and  some  two  and  a  half  millions  of  government  bonds 
were  earned  and  needed  to  meet  the  coming  January  interest, 
one  of  these  government  commissioners  refused  to  make  any 
report  until  he  was  paid  $25,000  in  cash.  The  exigency  was 
pressing — the  subsidy  must  be  had  or  the  interest  defaulted, 
and  the  general  superintendent  at  Omaha  actually  paid  the 
money,  without  consulting  the  directors,  who  subsequently  dis- 
approved the  act  and  for  a  time  held  him  responsible  for  the 
amount.  Another  government  commissioner  demanded  $50,000 


600  The  Pacific  Railroads  and  the  Government.  [July, 

for  accepting  a  portion  of  the  road,  and  threatened  that  if  it 
were  not  paid  "  he  would  give  them  hell  in  his  report " — a 
throat  which  ten  years  ago  was  considered  serious.  The  money 
was  not  paid,  and  the  commissioner  fully  justified  his  threat. 
In  an  elaborate  report,  which  was  published  in  all  the  news- 
papers of  the  country,  he  denounced  the  Union  Pacific  road  as 
a  fraud  and  a  sham.  With  that  amiable  tendency  to  believe 
evil  reports  which  characterizes  human  nature,  these  statements 
were  everywhere  accepted  as  truth,  and  for  a  year  or  more  after 
the  opening  of  the  road  the  country  rang  with  charges  that  the 
Union  Pacific  road  was  a  fraud  on  the  Government  and  the 
public.  That  it  was  unsafe  for  travel,  that  its  bridges  were 
flimsy,  that  its  cottonwood  ties  were  already  giving  out,  its  log 
culverts  falling  in,  its  embankments  rapidly  washing  away, 
and  that  for  the  purpose  of  increasing  the  amount  of  the  gov- 
ernment subsidies  wide  detours  and  frequent  curves  had  been 
fraudulently  introduced.  A  great  part  of  the  odium  and  ill 
repute  which  has  clung  to  the  Union  Pacific  Road  to  this  day, 
had  its  origin  in  these  assertions,  constantly  made  and  widely 
believed.  So  much  impression  was  created  by  them  that  the 
Government  delayed  its  final  acceptance  of  the  roads  and  with- 
held the  patents  for  about  three-fourths  of  the  land  grants. 
Congress  took  action  in  the  matter  and  a  special  commission, 
with  Hon.  Benj.  F.  Wade  at  its  head,  was  appointed  to  make  a 
thorough  examination  of  the  roads  throughout  their  entire 
length  and  report  on  their  condition.  The  examination  was 
carefully  made  during  the  year  1870,  and  the  report  was  a  com- 
plete vindication  of  the  companies  in  all  substantial  particulars. 
Very  few  deficiencies  were  found  in  the  condition  of  the  roads 
as  first-class  structures.  A  few  short  curves  were  recommended 
to  be  straightened ;  in  one  or  two  gorges  crossed  by  trestle 
embankments  were  advised,  and  some  other  minor  details  were 
suggested.  It  was  stated,  however,  in  the  report,  that  most  of 
the  changes  recommended  had  been  originally  contemplated  by 
the  company  and  only  deferred  till  the  completion  of  the  road, 
and  that  some  were  already  in  progress.  As  travelers  have 
sometimes  remarked  upon  the  occasional  curves  in  the  Union 
Pacific  road  where  it  might  have  seemingly  been  shortened 
to  advantage  by  cuts,  it  may  be  added   that  in    many  places 


1878.]  The  Pacific  Railroads  and  the  Government  501 

where  cuts  were  made  in  the  original  construction  of  the  road, 
they  have  since  been  filled  up  and  curves  over  open  ground 
introduced,  experience  having  shown  that  in  winter  such  exca- 
vations fill  up  with  frozen  snow  and  become  impassable. 

The  Government  required  these  changes  to  be  made  before 
it  would  accept  the  road  as  a  completed  road  and  issue  patents 
for  the  lands.  The  changes  were  made,  but  the  final  accept- 
ance was  still  postponed.  The  Government  required  a  higher 
standard  for  a  first-class  road  than  the  companies  acknowl- 
edged, and  several  successive  commissions  were  appointed  to 
establish  the  proper  standard.  Finally,  in  November,  IS 74. 
the  last  commission  reported  that  the  roads  were  fully  up  to 
the  proper  standard  of  a  first-class  road.  President  Grant 
accepted  the  report  and  thus  at  last  the  Government  recoguized 
and  accepted  the  road  as  complete,  according  to  the  require- 
ments of  its  charter.  Subsequently,  in  1875.  a  rumor  found 
currency  that  the  Pacific  Railroads  had  been  fraudulently  over- 
measured  by  the  companies,  and  that  bonds  had  been  drawn 
from  the  government  for  miles  of  road  that  never  were  built. 
The  companies  were  not  public  favorites  at  the  time,  and  an 
act  was  speedily  passed  by  Congress  for  the  re-measurement  of 
the  roads,  with  an  appropriation  of  $10,000  for  the  purpose. 
The  re-measurement  was  carefully  made  by  array  officers,  and 
a  mistake  of  two  or  three  miles  was  discovered,  but  it  was  a 
mistake  of  under  measurement,  and  the  net  result  to  the  Govern- 
ment was  the  $10,000  expense  of  re-measuring,  and  an  addi- 
tional indebtedness  to  the  Union  Pacific  Road  of  over  $100,000 
in  subsidy  bonds  and  the  corresponding  land  grant  besides. 

From  the  day  the  roads  were  opened  for  travel  (in  May, 
1869),  they  have  fully  justified  the  report  of  Mr.  Wade's  com- 
mittee that  they  were  built  and  equipped  in  all  respects  as 
first-class  roads.  Their  operation,  notwithstanding  the  special 
difficulties  arising  from  snow  both  on  the  mountains  and  on 
the  plains,  has  been  regular  and  almost  uninterrupted.  There 
has  been  a  remarkable  freedom  from  accidents  of  every  kind, 
and  especially  such  as  result  from  careless  or  fraudulent  con- 
struction. The  benefits  which  they  have  conferred  upon  com- 
merce, industry,  and  the  traveling  public  have  been  of  course 
almost    unparalleled    in    the   history   of    public    works,     but 


502  The  Pacific  Railroads  and  the  Government.  [July, 

scarcely  greater  than  the  immense  and  immediate  advantages, 
political  and  pecuniary,  which  have  been  derived  from  them  by 
the  Government. 

The  whole  Pacific  slope,  a  vast  and  almost  independent 
empire,  was  at  once  thoroughly  absorbed  into  our  federal  sys- 
tem, and  the  commerce  and  control  of  the  Pacific  ocean  was 
made  secure.  A  great  tide  of  migration  to  the  territories  along 
their  line  brought  the  government  lands  at  once  into  market. 
Mining  towns,  counties  and  States  sprang  into  existence 
among  the  mountains  which,  when  the  road  was  chartered, 
were  an  unexplored  region  of  mystery,  and  began  like  so 
many  inexhaustible  fountains  to  pour  forth  those  streams  of 
wealth  which  have  since  revolutionized  values  and  made  ninety 
cents  worth  a  hundred.  Indian  wars,  before  so  troublesome  and 
expensive,  were  ended  in  that  portion  of  our  territory  forever. 
The  Mormon  problem  was  solved  and  all  farther  political 
danger  from  that  source  averted.  In  fact  it  is  impossible 
even  to  enumerate  the  beneficent  results  to  our  political 
system  which  have  ensued  within  these  past  nine  years  from 
the  completion  of  the  Pacific  Eoads.  There  is  no  sane  man 
who  would  for  an  instant  consider  that  two  hundred  or  five 
hundred  millions  of  dollars  would  compensate  the  Government 
for  the  loss  of  those  roads  to-day.  Not  one  who  would  not 
heartily  endorse  as  wise  and  sound  the  words  of  Henry  Wilson 
in  1862 :  "If  I  could  get  the  road  by  voting  fifty  millions  or  one 
hundred  millions  to  it  as  a  gift,  I  would  do  it  most  cheerfully 
and  consider  that  I  was  doing  a  great  thing  for  my  country." 

From  1869  through  1870  the  business  of  the  roads,  though 
gradually  improving,  was  not  sufficient  to  show  that  their  ulti- 
mate success  as  a  pecuniary  investment  was  certain.  The 
Union  Pacific  bonds  were  selling  below  par,  and  its  stock 
at  from  twenty-five  to  thirty.  The  amount  that  it  was 
entitled  to  receive  from  the  Government  for  transportation 
services  (which  by  the  terms  of  the  charter  was  one-half  of  the 
whole  amount  earned,  the  other  half  being  retained  by  the  Gov- 
ernment) was  very  important  to  it  as  affording  the  means  of 
meeting  its  quarterly  interest.  Just  at  this  critical  time  (in 
November,  1870)  the  Secretary  of  the  Treasury  announced  to  the 
companies  that  thenceforward  the  Government  would  retain  the 


1878.]  The  Pacific  Railroads  and  the  Government.  503 

whole  amount  of  its  transportation  dues  instead  of  paying  over 
one-half  as  had  been  regularly  done  theretofore.  The  Secretary 
based  this  determination  on  a  legal  construction  of  the  charter, 
approved  by  the  Attorney- General,  but  then  for  the  first  time 
suggested,  and  which  he  arrived  at  by  comparing  the  act  of 
1862  with  that  of  1864.  The  act  of  1862  provided  that  uall 
compensation  for  services  rendered  to  the  Government  shall  be 
applied  to  the  payment  of  the  government  bonds  and  interest 
until  the  whole  amount  is  fully  paid."  The  act  of  1864 
amended  this  provision  by  enacting  "  that  only  one-half  of  the 
compensation  earned  by  services  to  the  Government  shall  be 
required  to  be  applied  to  the  payment  of  the  bonds  issued  by 
the  Government  in  aid  of  the  construction  of  the  road."  From 
1864  down  to  September,  1870,  no  one  had  doubted  that  the 
amendment  was  co-extensive  with  the  clause  amended,  and  the 
uniform  practice  of  the  Secretary  of  the  Treasury  had  been  to 
pay  over  to  the  roads  in  cash,  one-half  of  the  amounts  due 
them  for  government  service,  retaining  the  balance  in  the 
Treasury.  By  the  new  interpretation,  however,  one-half  was 
to  be  retained  under  the  act  of  1864  for  payment  of  the  bonds, 
and  the  other  half  by  the  act  of  1862  for  payment  of  the  inter- 
est. When  this  decision  was  made  public,  fortified  by  the 
opinion  of  Mr.  Akerman,  the  Attorney-General,  the  effect  was 
most  disastrous  to  the  Union  Pacific  securities.  The  first 
mortgage  bonds  fell  from  95  to  70,  land  grant  bonds  from 
81  to  50,  income  bonds  from  82  to  35,  and  the  stock  from 
25  to  9.  The  matter  was  brought  at  once  before  Congress,  and 
the  Senate  Judiciary  Committee  (of  which  Mr.  Thurman  was 
then  a  member)  unanimously  reported  that  the  action  of  the 
Secretary  was  in  violation  of  the  contract  on  the  part  of  the 
Government.  In  March,  1871,  Congress  directed  the  Secretary 
of  the  Treasury,  "  in  accordance  with  the  act  of  1864,  to  pay 
over  in  money  to  the  Pacific  Railroad  Companies  one-half  of 
the  compensation  provided  by  law  for  such  services  heretofore 
or  hereafter  rendered." 

Subsequently,  in  1873,  under  the  influence  of  the  Credit 
Mobilier  excitement,  Congress  set  aside  its  own  deliberate  con- 
struction of  this  clause  and  directed  the  Secretary  of  the 
Treasury  to  withhold  all  payments  for  government  transporta- 


504  The  Pacific  Railroads  and  the  Government.  [July, 

tion  to  the  amount  of  the  interest  on  the  government  bonds ; 
providing,  however,  that  the  companies  might  bring  suit  in 
the  Court  of  Claims  to  recover  the  price  of  such  freight  and 
transportation,  under  their  charter,  with  the  right  for  either 
party  to  appeal  to  the  Supreme  Court.  In  pursuance  of  this 
legislation  the  government  payments  were  again  withheld  and 
the  Union  Pacifie  Company  brought  their  suit  in  the  Court  of 
Claims.  The  case  was  fully  argued  and  the  Court  pronounced 
its  decision  unequivocally  in  favor  of  the  company  with  judg- 
ment for  $512,632.50.  From  this  decision  the  Government 
appealed  to  the  Supreme  Court,  which  sustained  the  Court  of 
Claims  by  a  final  judgment  in  October,  1875.  In  their 
opinions  rendered  in  this  case,  both  Courts  comment  with 
some  severity  upon  the  position  of  the  Government  as  un- 
reasonable and  unjust.  The  Court  of  Claims  says:  "In  con- 
templation of  law,  the  wrong  and  injury  of  which  the  Govern- 
ment complains  are  entirely  of  its  own  choosing.  *  *  *  If 
an  ordinary  party  were  to  come  into  another  Court  with  such  a 
complaint  he  would  be  told,  "Either  you  have  wilfully  with- 
held this  employment  from  the  other  contractor,  or  you  have 
been  unable  to  furnish  it  to  him.  If  the  former  supposition  is 
the  fact,  then  the  fault  is  your  own,  and  you  cannot  ascribe 
wrong  to  one,  who,  you  confess,  has  always  been  willing  to 
repay  you  in  the  manner  your  agreement  prescribes :  If  the 
latter  is  the  fact  then  because  the  sources  of  payment  which 
you  provided  disappoint  you  and  because  the  payment  in  kind 
which  you  elected  to  take  gives  you  more  of  the  transportation 
service  than  you  really  require,  you  are  trying  to  shift  your 
loss  to  other  shoulders  than  your  own."  The  Supreme  Court 
uses  language  not  less  emphatic.  After  recounting  the  great 
necessity  to  the  Government  that  the  roads  should  be  con- 
structed and  its  anxious  but  barely  sufficient  offers  and  pledges 
as  inducements  to  enlist  private  capital  and  enterprise,  and  the 
enormous  hazards  assumed  by  those  who  built  the  roads, 
they  add  :  "  Of  necessity  there  were  risks  to  be  taken  in  aid- 
ing with  money  or  bonds  an  enterprise  unparalleled  in  the  his- 
tory of  any  free  people,  which  if  completed  at  all  would  require, 
as  was  supposed,  twelve  }rears  in  which  to  do  it.  But  these 
risks  were  common  to  both  parties,  and  Congress  was  obliged 


1878.]  The  Pacific  Railroads  and  the  Government.  505 

to  assume  its  share  and  advance  the  bonds  or  abandon  the 
enterprise.  If  the  road  were  a  success,  in  addition  to  the  bene- 
fit it  would  be  to  the  United  States,  the  corporation  would  be 
in  a  situation  to  repay  advances  for  interest  and  pay  the  princi- 
pal when  due.  If  on  the  contrary  the  investment  proved  to  be 
a  failure,  subjecting  the  private  persons  who  embarked  their 
capital  in  it  to  a  total  loss,  there  was  left  for  the  Government 
the  entire  property  of  the  corporation  of  which  immediate 
possession  could  be  taken  on  a  declaration  of  forfeiture."  The 
Court  then,  after  a  full  examination  of  the  Government's  claim, 
declare  it  inconsistent  with  its  agreement  and  obligations  under 
the  acts  of  1862  and  1864,  and  add  that  the  companies  "could 
not  in  the  nature  of  things  have  accepted  those  acts  with  the 
understanding  that  any  such  effect  should  be  given  them." 
They,  therefore,  unanimously  affirmed  the  decision  of  the  Court 
of  Claims  and  rendered  judgment  in  favor  of  the  corporations 
for  the  full  amount  demanded.  (United  States  vs.  U.  P.  E.  E. 
Co.,  1  Otto  E.  72.) 

Notwithstanding  these  judicial  decisions  the  payment  of  one 
half  of  the  government  dues  has  never  been  resumed.  During 
the  pendency  of  the  litigation  another  question  had  arisen  rela- 
tive to  the  obligations  of  the  companies  under  another  clause 
of  their  charter  to  pay  over  annually  to  the  Government  "five 
per  cent,  of  their  net  earnings,"  to  be  applied  on  the  government 
bonds.  Prior  to  1873,  inasmuch  as  the  roads  had  barely  earned 
their  operating  expenses  and  the  interest  on  their  funded  debts, 
it  was  not  claimed  that  they  had  made  any  M  net  earnings" 
within  the  terms  of  this  requirement  After  that  period,  how- 
ever, the  Government  set  up  a  new  construction  of  the  phrase, 
insisting  that  by  "  net  earnings"  was  intended  all  income  above 
operating  expenses  without  regard  to  interest  or  other  obligations, 
and  that  as  the  roads  had  failed  to  account  to  the  Government 
on  this  principle  they  were  in  arrears  to  an  amount  much 
greater  than  the  retained  transportation  dues,  and  under  this 
new  claim  has  continued  to  hold  back  the  latter  to  the  present 
time. 

This  continued  retention  of  government  dues  has  applied  not 
only  to  the  Union  Pacific  and  Central  roads,  but  to  all  the 
other  roads  which  were  aided  by  the  Acts  of  1862  and  1864, 

vol.  i.  33 


506  The  Pacific  Railroads  and  the  Government         [July, 

and  originally  designed  to  be  feeders  of  the  main  line,  viz :  the 
Kansas  Pacific,  the  Sioux  City  and  Pacific,  and  the  Central 
Branch  Union  Pacific,  none  of  which  have  ever  made  any 
net  earnings  except  under  the  above  construction.  The  effect 
of  this  continued  retention  has  been  fatal  to  at  least  one  of 
these  companies,  the  Kansas  Pacific,  which  as  already  stated, 
has  in  consequence  been  forced  into  the  hands  of  a  receiver. 
The  other  roads  named  have  also  been  seriously  crippled  by 
the  same  cause,  and  should  they  follow  the  fate  of  the  Kansas 
Pacific,  the  Government  as  second  mortgagee  in  all  of  them, 
will  lose  its  entire  investment,  amounting  to  many  millions  in 
bonds  and  land  grants. 

The  great  Credit  Mobilier  excitement  arose  during  the  ses- 
sion of  Congress  in  the  years  1872-3,  and  originated  in  some 
imputations  respecting  Mr.  Blaine,  then  Speaker,  which  first 
appeared  in  the  newspapers  of  the  day,  and  afterwards  were 
referred  to  on  the  floor  of  the  House.  The  intimation  was  that 
he  had  received  stock  in  the  Credit  Mobilier  and  the  Union 
Pacific  companies,  while  a  member  of  Congress,  as  a  gift,  in 
order  to  influence  his  votes  with  reference  to  the  roads.  Mr. 
Blaine  called  the  matter  up  and  demanded  that  the  charges  be 
investigated.  Other  members  of  Congress  were  implicated  in 
the  same  charges  and  by  general  consent  committees  were 
appointed  to  inquire  into  these  matters  as  well  as  the  whole 
history  of  the  Credit  Mobilier  and  its  relations  to  the  Union 
Pacific  Company.  By  these  committees  testimony  was  taken 
in  relation  to  every  matter  directly  or  remotely  bearing  on  the 
subject.  A  Presidential  contest  had  just  occurred,  and  the 
excitement,  intensified  by  political  feeling,  was  fanned  to  a 
frenzy  which  filled  the  country.  In  such  a  period  there  was 
little  chance  for  a  candid  and  rational  consideration  of  the 
facts  ascertained  or  the  questions  involved.  When  once  a  cry 
of  "  fraud,  bribery,  and  corruption"  has  been  fully  raised  it 
generally  bears  down  all  remonstrance ;  not  to  denounce  is 
a  proof  of  complicity  or  a  perverted  moral  sense,  and  it  is  as 
useless  to  appeal  to  actual  facts  as  it  was  for  Galileo  to  reason 
with  the  Holy  Inquisition.  It  would  be  hard  to  find  a  better 
illustration  of  this  truth  than  the  congressional  debates  over 
these  investigations,  and  the  public  sentiment  during  the  past 
five  years  with  regard  to  the  Credit  Mobilier. 


1878.]  Tlie  Pacific  Railroads  and  the  Government  507 

Nothing  is  more  fully  and  generally  believed  at  this  day 
than  that  the  Credit  Mobilier  was  an  organized  robbery  whose 
victims  were  the  stockholders  of  the  Union  Pacific  Company 
and  the  Government.  That  it  was  composed  of  a  ring  of 
Directors  and  other  managers  of  the  Union  Pacific  Company, 
who  voted  extravagant  contracts  to  themselves  in  fraud  of  the 
other  stockholders  whose  interests  they  represented  and  were 
bound  to  protect,  aud  thus  absorbed  as  members  of  the 
Credit  Mobilier,  the  profits  which  ought  rightfully  to  have  gone 
into  the  pockets  of  their  Union  Pacific  associates.  That  this 
same  ring  also  cheated  the  Government  by  making  the  road 
under  cover  of  these  fraudulent  contracts  appear  to  cost  vastly 
more  than  they  were  entitled  to  receive,  and  thus  robbed  both 
the  Union  Pacific  Company  and  the  Government  of  enormous 
sums  of  money.  The  imputed  crime  of  attempting  to  bribe 
members  of  Congress  is  also  attached  in  the  common  mind  as 
a  stigma  to  the  Credit  Mobilier ;  although  the  Company  was 
in  no  way  identified  with  the  acts  referred  to.  We  are  under  a 
strong  temptation  to  review  this  subject  by  itself,  in  the  light 
of  the  subsequent  judicial  decision  to  which  we  shall  hereafter 
refer  and  which  has  overthrown  a  principal  ground  for  the 
imputation  of  a  corrupt  motive  in  those  transactions.  We 
would  like  to  discuss  the  dangerous  stretch  of  prerogative  by 
which  the  House  of  Representatives  assumed  jurisdiction  over 
acts  of  members  committed  four  years  before  they  were  elected, 
and  imposed  punishment  therefor  in  a  vote  of  "  absolute  con- 
demnation." It  would  be  interesting  to  consider  the  moral 
force  of  such  a  condemnation  for  the  crime  of  inducing  other 
members  of  Congress  to  invest  in  the  stock  of  an  open  cor- 
poration, by  Honorable  Representatives  who  had  secured  their 
elections  by  trades  and  bargains  if  nothing  worse,  and  whose 
pockets  were  stuffed  with  railroad  passes  and  promised  commis- 
sions for  political  supporters.  Had  there  been  as  much  com- 
punction about  "casting  the  first  stone"  as  there  was  in  a 
somewhat  similar  case  mentioned  in  Scripture  there  would  have 
been  few  indeed  to  answer  to  the  call  of  yeas  and  nays  when 
the  vote  of  censure  was  reached.  But  these  themes  are  foreign 
to  our  present  purpose  which  is  merely  to  consider  the  Credit 
Mobilier  as  an  organization  connected  with  the  Union  Pacific 


508  The  Pacific  Railroads  and  the  Government.         [July. 

Bailroad  Company  and  to  explain  those  relations  alone.  Yet  we 
will  express  a  confidence  in  passing,  whatever  odium  may  attach 
to  the  declaration,  that  time  will  bring  a  more  dispassionate 
revision  of  the  facts  referred  to,  and  a  more  just  and  generous 
estimate  of  the  acts  and  motives  of  the  principal  actor  in  them 
than  they  have  yet  received. 

Under  the  charter  of  the  Union  Pacific  Company  as  contained 
in  the  Act  of  1862,  its  capital  stock  was  fixed  at  one  hundred 
millions  of  dollars.  The  company  might  organize,  however,  and 
commence  business  as  soon  as  $2,000,000  should  be  subscribed, 
and  $200,000  paid  in.  As  has  been  already  stated,  it  was  not 
found  easy  to  obtain  this  preliminary  subscription.  In  October, 
1863,  barely  the  necessary  number  of  shares  had  been  sub- 
scribed and  there  was  no  prospect  of  any  considerable  increase. 
If  the  enterprise  was  undertaken  and  carried  forward  at  all  then, 
it  must  be  by  a  few  bold  and  resolute  pioneers  who  should 
invest  every  dollar  of  their  own,  and  all  that  they  could  borrow 
in  the  work,  and  settle  at  their  own  risk  the  question  of  profit 
or  loss.  The  Act  of  1864  required  that  the  books  of  the 
Company  should  be  kept  open,  until  the  whole  amount  of 
$100,000,000  should  be  subscribed,  and  this  provision  operated 
to  destroy  all  the  inducements  offered  by  the  charter  to  parties 
who  should  build  the  road.  It  was  in  vain  to  beg  capitalists 
to  take  all  the  risks  and  burdens  of  the  work  by  urging  the 
profits  that  would  probably  be  made.  The  answer  was  that  if 
the  attempt  should  fail  the  whole  investment  would  be  forfeited, 
and  if  any  profits  should  accrue,  all  these  would  go  into  the 
corporation  treasury,  and  could  be  shared  in  by  any  body  and 
every  body  who  might  come  in  afterwards  and  subscribe  to  the 
stock.  Obviously  this  was  unjust  and  could  not  have  been  the 
intention  of  Congress.  The  design  was  that  those  who  took  the 
risks  of  furnishing  the  road  should  reap  the  profits  if  any  were 
made.  It  was  in  order  to  meet  this  difficulty  and  to  secure  this 
object  that  the  Credit  Mobilier  was  availed  of.  This  was  simply 
a  new  corporation  formed  of  the  then  stockholders  of  the  Union 
Pacific  Company  and  of  all  others  who  should  aid  in  construct- 
ing the  road.  There  was  no  ring,  no  inside  manipulations,  no 
exclusive  contracts,  or  privileges,  or  profits.  Every  stockholder 
in  the  Union  Pacific  Company  took  stock  in  like  proportion  in 


1878.]  TJie  Pacific  Railroads  and  the  Government.  509 

the  Credit  Mobilier,  and  those  who  declined  were  bought  out.  It 
was  a  fundamental  rule  and  principle  of  action  that  there  should 
be  no  Union  Pacific  stockholders  outside  of  the  Credit  Mobilier, 
so  that  each  and  all  might  take  their  due  share  in  the  burdens 
and  receive  their  due  proportion  of  the  benefits.  Upon  whom 
then  was  the  alleged  fraud  in  this  arrangement  perpetrated  ? 
Not  upon  the  Union  Pacific  stockholders,  for  the  arrangement 
was  with  themselves  and  for  their  mutual  protection  and  ad- 
vantage. More  for  protection  certainly  than  advantage  in  1864, 
for  the  profits  to  be  derived  from  the  building  of  the  road  were 
then  so  dubious  that  subscriptions  to  the  Credit  Mobilier  stock 
were  obtained  with  the  greatest  difficulty,  and  even  in  the 
Spring  of  1867,  when  it  became  necessary  to  add  50  per  cent,  to 
its  capital,  many  of  the  old  stockholders  declined  to  subscribe 
farther,  although  a  bonus  was  offered  of  first  mortgage  Union 
Pacific  bonds  equal  to  the  amount  of  each  stock  subscription. 
So  doubtful  even  then  were  the  prospects  of  the  enterprise  and 
so  low  the  value  of  the  best  Union  Pacific  securities ! 

The  Committees  of  the  House  of  Eepresentatives  which  had 
charge  of  investigating  the  history  of  the  Credit  Mobilier  Com- 
pany and  its  relations  to  the  Union  Pacific,  denounced  it  as 
a  scheme  for  defrauding  the  Government  on  the  ground  that 
the  contracts  with  the  Credit  Mobilier  covered  the  whole  amount 
of  the  government  subsidy,  while  only  a  part  was  actually 
needed  to  build  the  road.  They  insisted  that  these  grants  of 
bonds  and  lands  to  the  Union  Pacific  Company  were  in  trust 
merely  to  use  only  so  much  of  them  as  might  be  actually  re- 
quired. The  Wilson  Committee  say  :  u  The  Committee  cannot 
doubt  that  the  proceeds  of  these  lands  and  bonds  as  well  as  of 
the  first  mortgage  bonds  which  the  Government  has  provided  to 
secure  by  a  lien  prior  to  its  own,  are  held  as  an  express  trust 
by  this  company  and  applicable  alone  to  said  declared  purposes 
of  the  acts  [viz :  to  aid  in  the  construction  of  a  railroad,  &c] 
Any  distribution  of  the  proceeds  of  either  of  these  funds,  as 
profits  or  dividends  to  stockholders  is  illegal  as  violative  of 
the  declared  purposes  of  the  trust,"  &c.  And  this  in  face  of 
the  fact  that  the  act  of  1862  provides  for  the  preemption  of 
lands  not  sold  within  three  years  after  the  completion  of  the  road  ! 
The  same  Committee  in  their  report  speak  of  the  "bounty  of 


510  The  Pacific  Railroads  and  the  Government.  [July, 

the  Government"  and  "the  munificent  grant  of  lands  and  loan 
of  government  credit  to  the  road,"  terms  which  are  strangely 
applied  if  the  Government  intended  that  the  builders  of  the  road 
should  receive  from  it  as  a  loan  bonds  worth  only  74  or  75  in 
the  market  to  be  repaid  in  full  at  maturity,  and  should  add 
enough  of  their  own  money  to  meet  the  cost  of  building  the 
road  without  profit,  and  in  case  of  any  default  should  forfeit 
their  whole  investment.  Nevertheless  in  the  full  possession  of 
this  idea,  an  act  recommended  by  the  Committee  was  imme- 
diately passed,  directing  the  Attorney  General  "to  commence 
a  suit  against  the  Union  Pacific  Company,  and  against  every 
person  who  might  have  wrongfully  and  unlawfully  received  as 
dividends  or  profits,  under  contracts  for  constructing  the  road, 
bonds,  money,  or  lands  which  ought  to  be  accounted  for  either 
to  the  railroad  corporation,  or  to  the  United  States,  and  to 
compel  the  restoration  of  such  property  or  its  value,  to  the 
railroad  company,  or  to  the  United  States,  whichever  might  be 
equitably  entitled  thereto." 

The  suits  were  brought  by  the  Attorney -General  as  directed, 
in  the  U.  S.  Circuit  Court  for  the  District  of  Connecticut,  in  Sep- 
tember, 1873 — a  most  remarkable  litigation  in  its  character ;  one 
hundred  and  seventy-one  different  actions  against  as  many  dif- 
ferent defendants,  some  of  them  dead,  some  of  them  executors 
or  administrators,  and  others  heirs  of  such  deceased  defendants, 
very  many  of  them  purchasers  of  Union  Pacific  securities  in  the 
market,  and  never  connected  with  the  Credit  Mobilier, — these 
defendants  being  scattered  all  over  the  country  from  Maine  to 
California,  and  each  being  required  to  appear  in  Connecticut 
and  answer,  or  suffer  a  judgment  by  default,  which  might 
be  pecuniary  ruin.  Very  many  failed  to  appear.  By  some 
of  the  leading  defendants,  including  the  Union  Pacific  K.  K. 
Co.,  answers  were  put  in  the  nature  of  a  demurrer  denying  the 
legality  of  the  proceeding  on  various  grounds,  and  especially 
denying  the  doctrine  on  which  it  was  based,  viz :  that  the  gov- 
ernment grants  of  lands  and  bonds  to  aid  in  the  construction 
of  the  roads  were  trust  funds  in  any  sense,  but  insisting  that 
they  were  subsidies  received  on  no  other  trust  or  condition 
than  merely  to  build  the  road  with  them  in  the  manner  specified 
in  its  charter.     The  case  was  fully  argued  on  both  sides  and  the 


1878.]         The  Pacific  Railroads  and  the  Government.  511 

decision  of  the  court  (Judges  Hunt  and  Shipman  presiding)  was 
adverse  to  all  the  positions  of  the  Government.  As  to  the  claim 
that  the  government  grants  were  trust  property,  the  court  was 
very  full  and  explicit,  and  used  the  following  language  :  u  In 
the  sense  that  all  men  are  bound  to  deal  honestly  and  justly 
in  the  discharge  of  their  duties,  and  that  whoever  receives 
benefits  or  advantages  from  the  public  which  are  expected  or 
intended  to  produce  an  advantage  to  some  portion  of  the 
people  of  the  country,  assumes  a  trust  to  effect  that  advan- 
tage, the  plaintiffs'  claim  is  true.  It  is  not,  however,  accurate 
in  a  legal  sense  to  say  of  a  bank  incorporated  for  banking 
purposes,  or  of  an  insurance  company,  or  of  any  similar 
institution,  that  it  is  a  trustee  of  the  Government  to  effect 
the  desired  result ;  or  that  its  property  is  impressed  with 
a  trust  for  that  purpose  which  can  be  enforced  in  the  courts. 
Such  incorporation  is  chartered  for  private  benefit  as  well 
as  public  advantage  and  is  legally  bound  to  administer  its 
affairs  for  the  public  advantage  only  to  the  extent  that  it 
does  not  violate  the  provisions  of  its  charter  or  the  law  of  the 
land.  With  this  limitation  such  corporations  are  authorized 
to  manage  their  own  affairs  for  their  own  benefit  and  such  is 
the  understanding  of  the  Government  which  grants  a  charter, 
and  of  the  individuals  who  accept  it."  "  This  railroad  com- 
pany is  not  a  charitable  corporation,  nor  were  the  grants  for  a 
charitable  use.  The  grants  of  land  and  the  issuing  of  bonds 
are  to  be  considered  as  gifts,  gratuities,  voluntary  contributions 
to  aid  in  the  construction  of  works  which  it  was  supposed 
would  develop  the  resources  of  the  country,  advance  its  civil- 
ization and  improvement,  and  upon  which  the  mails  and  muni- 
tions of  war  could  be  transported.  When  given  and  accepted 
the  power  of  the  donor  is  at  an  end  and  the  absolute  own- 
ership is  in  the  corporations.  The  position  of  the  Govern- 
ment is  that  of  a  donor  and  not  that  of  a  creditor  or  cestui  que 
trust  except  where  such  position  is  distinctly  specified."  The 
bill  was  accordingly  dismissed. — (11  Blatchford  Rep.,  385.) 

By  this  judicial  decision,  therefore,  it  was  established  after  a 
full  hearing  that  the  Credit  Mobilier  was  not  a  fraud  upon  the 
Government,  and  that  the  profits  which  it  made  by  its  appro- 
priation of  the  government  subsidies  in  full  as  compensation  for 


512  The  Pacific  Railroads  and  the  Government.         [July, 

building  the  road  were  not  illegitimate  but  fully  in  accord 
with  the  original  purpose  of  Congress.  "  It  is  apparent  to  the 
most  superficial  reader  of  the  Statutes,"  say  the  Court,  "  that 
the  great  object  of  Congress  was  to  bestow  advantages  and 
from  time  to  time  to  increase  gratuities  to  a  corporation  which 
should  undertake  the  completion  of  a  railroad  to  the  Pacific." 
"  No  authority  is  cited  to  sustain  the  argument  that  gifts  or 
gratuities  to  a  business  corporation  are  in  the  nature  of  a  trust 
and  I  have  found  none."  And  yet  it  was  largely  upon  this 
assumption  that  the  Poland  Committee  charged  Oakes  Ames 
with  corruption  in  selling  Credit  Mobilier  stock  to  other 
members  of  Congress,  and  recommended  that  he  be  expelled 
the  House.  It  was  upon  this  assumption  that  the  press, 
the  platforms,  and  the  pulpits  of  the  country  rang  at  the 
time  with  denunciations  of  the  "shameful  frauds  of  that 
corrupt  organization,"  and  it  is  upon  this  assumption  that  even 
to  this  day  the  "frauds  and  robberies  of  the  Credit  Mobilier" 
are  constantly  alluded  to  as  a  part  of  the  accepted  history 
of  the  time.  So  difficult  is  it  for  truth  and  reason  to  overtake 
and  conquer  prejudice,  and  so  slow  are  men  to  be  convinced 
of  their  mistake  in  believing  that  others  are  not  as  honest 
as  themselves.  That  errors  and  acts  worse  than  errors  were 
not  committed  by  two  or  three  individuals  in  connection  with 
the  Credit  Mobilier,  we  do  not  affirm,  but  we  do  insist  that 
there  was  nothing  in  the  nature  and  purposes  of  the  organ- 
ization, or  in  its  relations  or  transactions  with  respect  to  the 
Union  Pacific  Company  or  the  Government  which  can  justify 
the  stigma  which  has  been  attached  to  it.  Among  its  stock- 
holders are  found  the  names  of  men  of  the  highest  character 
as  men  of  honor  and  financial  integrity  ;  names  suggestive 
of  anything  but  of  rings  and  combinations  to  cheat  their  asso- 
ciates, or  to  rob  the  Government,  or  steal  trust  funds.  And 
since  by  the  solemn  judgment  of  a  high  judicial  tribunal 
selected  by  the  Government  itself,  the  corporation  has  been 
exonerated  from  the  imputations  of  robbery  and  fraud  so 
freely  cast  upon  it  by  the  popular  cry,  would  it  not  be  just 
for  well-informed  and  candid  men  to  cease  reiterating  those 
imputations  as  if  they  had  been  fully  sustained  ? 

The  positions  assumed  by  the  Congressional  Committees  in 


1878.]  The  Pacific  Railroads  and  the  Government.  513 

their  reports  on  the  Credit  Mobilier  contracts  and  the  action  of 
Congress  thereon  are  extremely  significant,  when  compared  with 
the  later  Goverment  claims  and  the  legislation  which  we  shall 
hereafter  consider.  In  1873  the  complaint  was  that  the  Govern- 
ment had  been  defrauded  and  subjected  to  risk  and  probable 
loss  to  the  amount  of  those  bonds  which  had  been  unnecessarily 
called  for  in  the  construction  of  the  roads,  unless  the  excess 
thus  wrongfully  absorbed  could  be  recovered  back  in  an  action 
at  law.  This  charge,  of  course,  implies  that  the  government 
had  no  other  security  for  its  loans,  or  means  of  obtaining  re- 
payment of  the  principal  and  interest  advanced  than  those  pro- 
vided in  the  charter  of  the  roads  and  that  these  were  probably 
inadequate.  If,  however,  the  charter  could  be  altered  to  any 
extent  by  Congress  at  its  pleasure,  it  would  be  easy  so  to 
change  the  conditions  and  terms  of  the  loans,  and  to  insert 
such  new  and  stringent  requirements  with  respect  to  their  re- 
payment, as  to  make  the  government  absolutely  secure.  No 
such  idea  seems  to  have  occurred  to  any  one.  The  Wilson 
Committee  declare  that  "  they  have  given  much  consideration 
to  the  question  of  remedy."  But  they  have  none  to  suggest 
except  a  judicial  proceeding  to  forfeit  the  charter,  or  its  absolute 
repeal  (both  of  which  were  in  the  nature  of  punishments,  not 
security),  or  a  suit  to  recover  back  "  the  trust  funds  "  assumed 
to  have  been  illegally  appropriated.  The  last  was  the  course 
adopted  and  we  have  already  seen  that  it  failed  in  the  Courts. 
In  our  next  Article  we  shall  review  the  subsequent  enactments 
which  sprang  from  more  advanced  views  of  Congress  with 
respect  to  its  powers  over  the  contract  with  the  companies,  and 
which  form  a  new  and  remarkable  chapter  in  the  annals  of 
legislation  with  respect  to  government  contracts  and  chartered 
corporate  rights. 


BomfolimeuU  of  Ji.  S.  SlaktQ 


[Reprinted  from  the  New  Englander  for  September,  1878.] 


THE  PACIFIC  RAILROADS  AND  THE  GOVERNMENT. 


(Second  Article.) 
By  Henry  T.  Blake. 


THE  PACIFIC  RAILROADS   AND  THE  GOVERNMENT. 


At  the  completion  of  the  Pacific  Railroad  the  Government 
had  issued  its  six  per  cent,  thirty  year  currency  bonds  as 
subsidies  to  the  foad  and  its  branches  under  the  act  of  1862  to 
the  amount  of  about  sixty-four  millions  of  dollars.  Of  these, 
nearly  fifty-five  millions  had  been  received  by  the  Union  and 
Central  Pacific  Companies,  or  about  twenty-seven  and  a  quarter 
millions  by  each  company.  The  interest  on  these  bonds,  and 
their  principal  as  they  matured  in  1895-9  must  of  course  be 
met  by  the  Government,  but  by  the  terms  of  the  act  (as 
amended),  they  constituted  a  second  mortgage  "  on  the  whole 
line  of  railroad  and  telegraph,  together  with  the  rolling  stock, 
fixtures,  and  property  of  every  kind  and  description. v  As 
additional  security  the  act  provided  that  the  Government  might 
annually  reserve  one  half  of  the  current  indebtedness  to  the 
companies  for  mail  and  other  transportation  services ;  and 
farther  that,  "after  said  road  is  completed,  until  said  bonds 
and  interest  are  paid,  at  least  five  per  centum  of  the  net  earn- 
ings of  said  road  shall  also  be  annually  applied  to  the  payment 
thereof." 

We  have  already  explained  in  a  former  Article  how  Congress 
in  the  midst  of  the  Credit  Mobilier  excitement  directed  the 
Secretary  of  the  Treasury  to  withhold  all  payments  for  freight 
or  transportation  services  of  any  kind  to  the  amount  of  the 
interest  on  the  government  bonds  and'  five  per  cent,  of  the 
roads'  net  earnings,  with  a  provision  that  the  companies  might 
bring  suit  in  the  Court  of  Claims  to  recover  such  retained 
freight  and  transportation  dues.  This  controversy,  with  the 
decisions  upon  it  in  the  Court  of  Claims  and  the  Supreme  Court 
against  the  Government,  were  also  adverted  to.  The  Supreme 
Court  rendered  its  decision  in  October,  1875,  and  held  it  to  be 
the  clear  meaning  of  the  charter  that  the  companies  were  not 
bound  to  make  any  payments  to  the  Government  on  account 


1878.]  The  Pacific  Raih-oads  and  the  Government.  613 

of  its  bonds,  principal  or  interest,  until  their  maturity,  except  to 
the  amount  annually  of  one  half  the  government  transportation 
dues  and  five  per  cent,  of  their  net  earnings. 

Notwithstanding  these  decisions,  prudence  dictated  to  the 
companies  that  some  movement  should  be  begun  by  them  at 
an  early  day  toward  providing  for  this  ultimate  payment. 
Indeed,  several  months  previous  to  these  decisions  they  had 
themselves  called  the  attention  of  the  Government  to  the  sub- 
ject and  made  overtures  for  an  arrangement  by  which  a  sinking 
fund  should  be  established  for  the  extinction  of  the  debt,  and 
all  controversies  precluded  with  respect  to  it.  This  proposition 
was  favorably  received,  and  was  made  the  subject  of  delibera- 
tion and  conference  between  the  representatives  of  the  roads 
and  officers  of  the  Government,  and  members  of  Congress ;  but 
when  the  amount  of  annual  contribution  to  be  made  by  the 
companies  toward  such  a  sinking  fund  beyond  the  amount  they 
were  already  legally  bound  to  pay  came  up  for  adjustment,  a  dif- 
ference which  had  before  been  developed  between  the  companies 
and  the  government  authorities  came  prominently  into  discussion 
and  proved  to  be  irreconcilable.  This  difference  related  to  the 
legal  interpretation  of  the  phrase  k'  net  earnings,"  as  used  in  the 
above  quoted  provision  of  the  act  of  1862.  The  companies 
had  understood  it  to  mean  the  surplus  or  profits  which  annually 
remained  after  paying  their  operating  expenses  and  the  interest 
on  their  funded  debts.  Of  these  funded  debts  the  Union 
Pacific  alone  had  beside  its  first  mortgage  bonds  (twentv-seven 
millions)  whose  lien  was  prior  to  the  government  bonds,  about 
twenty  millions  of  land  grant  and  income  bonds,  in  all  some 
forty -seven  millions  of  indebtedness,  the  annual  interest  on 
which  (amounting  to  some  $600,000)  must  be  paid  in  addition 
to  their  operating  expenses  out  of  their  earnings,  or  the  com- 
pany go  into  bankruptcy.  This  interest  liability  the  companies 
maintained  was  a  charge  on  their  property,  essential  to  its  pre- 
servation and  to  the  continuance  of  their  business  as  much  as 
their  running  expenses,  and  should  therefore  be  added  to  the 
operating  expenses  before  "net  earnings,"  within  the  meaning 
of  the  charter,  could  be  ascertained.  The  Government  insisted 
that  no  such  addition  should  be  made,  and  that  the  u  net  earn- 
ings" referred  to  by  the  act  were  the  entire  surplus  remaining 


644  The  Pacific  Railroads  and  the  Government.         [Sept., 

after  operating  expenses  were  paid,  without  regard  to  interest 
on  any  part  of  the  funded  debt.  So  that,  although  in  any  year 
this  surplus  should  be  just  sufficient  or  even  insufficient  to  pay 
the  first  mortgage  interest,  the  Government  was  still  entitled  to 
five  per  cent,  on  account  of  its  second  mortgage  bonds,  in  pre- 
ference even  to  claims  of  the  first  mortgage  creditors.  Thus, 
although  the  Kansas  Pacific  Company  was  barely  earning  the 
interest  on  its  first  mortgage  bonds  beyond  operating  expenses, 
the  Government  has  retained  its  transportation  dues  under  this 
claim  of  u  five  per  cent,  net  earnings,"  and  has  actually  forced 
the  company  into  bankruptcy. 

The  Government  also  maintained  that  the  companies  had 
not  only  estimated  their  "net  earnings,"  and  the  five  per  cent, 
government  dues  thereon,  on  a  wrong  basis,  but  that  under  the 
clause  of  the  act  which  required  such  five  per  cent,  payments 
annually  "  after  the  road  should  be  completed,"  they  were  in 
arrears  since  July,  1869,  when  it  was  opened  for  business.  To 
this  the  companies  replied  that  from  1869  to  September,  1874, 
the  Government,  notwithstanding  their  repeated  applications 
had  refused  to  accept  the  road  as  completed  and  to  issue  their 
land  patents  accordingly,  and  that  it  was  inconsistent  for  the 
Government  now  to  fix  any  other  date  as  the  date  of  comple- 
tion than  that  of  its  own  acceptance. 

In  order  to  enforce  the  government  claim  for  these  arrears, 
Congress  directed  the  Attorney  General  "to  commence  suits 
in  the  proper  Circuit  Courts  of  the  United  States  against  the 
several  roads  which  had  been  aided  under  the  acts  of  1862 
and  1864,  and  to  prosecute  the  same  with  all  convenient  despatch 
to  a  final  determination."  In  pursuance  of  this  direction,  suits 
were  brought  in  1875  ;  the  first  of  these  to  be  heard  was  one 
brought  in  the  United  States  Circuit  Court  of  California  against 
the  Central  Pacific  Company,  demanding  $1,800,000  as  the 
accumulated  five  per  cent,  net  earnings  since  1869.  In  this 
suit  the  Government  was  again  defeated,  the  Court  holding 
that  the  obligation  to  pay  the  five  per  cent,  did  not  accrue  till 
one  year  after  September,  1874,  when  the  roads  were  accepted. 
A  year  from  that  time  not  having  elapsed  when  the  suit  was 
commenced,  it  was  held  to  have  been  prematurely  brought 
and  was  dismissed.     During  the  present  summer,  however,  the 


1878.]  TJie  Pacific  Railroads  and  the  Government  645 

opposite  view  has  been  taken  by  the  Court  of  Claims.  In  a 
suit  brought  by  the  Union  Pacific  Company  against  the  United 
States,  that  Court  has  held  that  the  road  was  completed  in 
1869.  That  the  liability  of  the  Company  began  at  that  date, 
and  that  interest  on  the  bonded  debt  should  not  be  deducted 
from  the  gross  earnings  before  the  net  earnings  are  estimated. 
It  now  remains  for  the  Supreme  Court  to  determine  between 
these  conflicting  decisions,  which  doctrine  is  correct,  and  until 
such  final  adjudication  by  the  tribunal  of  last  resort  the  ques- 
tions in  dispute  must  be  regarded  as  unsettled. 

While  the  litigation  respecting  these  mooted  questions  was 
pending  in  the  Courts  the  first  session  of  the  Forty-fifth 
Congress  commenced  in  December,  1877.  During  the  previous 
session  the  Senate  Judiciary  Committee  had  matured  and  pre- 
sented a  bill  "  to  alter  and  amend"  the  acts  of  1862  and  1864 
relating  to  the  Pacific  Kailroads  for  the  purpose  of  compelling 
the  companies  to  make  annual  payments  to  the  Government 
beyond  the  half  transportation  dues  and  the  five  per  cent,  net 
earnings  which  alone  those  acts  required  toward  extinguishing 
the  government  loan.  The  railroad  companies  had  also  pre- 
pared a  proposition  which  they  brought  forward  in  the  form 
of  a  bill  "  to  create  a  sinking  fund  for  the  liquidation  of 
the  government  bonds,"  etc.,  and  the  Senate  Eailroad  Commit- 
tee presented  a  third  bill  with  a  similar  title  and  object. 

The  proposition  of  the  railroad  companies  was  substantially 
to  the  following  effect:  That  the  Government  should  take 
back  from  each  company  six  millions  of  acres  of  land  in 
Nebraska,  Wyoming,  Nevada,  and  Utah,  at  a  valuation  of 
$1.25  per  acre,  and  should  credit  the  amount  of  the  aggregate 
valuation  (seven  and  a  half  millions  of  dollars)  to  each  com- 
pany as  the  foundation  of  a  sinking  fund,  retaining  such  fund 
in  the  U.  S.  Treasury,  and  allowing  six  per  cent,  interest 
thereon  ;  that  such  sinking  fund  should  be  farther  increased 
by  the  retained  transportation  dues  already  in  the  hands  of  the 
Government,  to  the  amount  of  one  million  dollars  for  each  com- 
pany ;  and  that  each  company  should  pay  in  annually  to  the 
fund  such  amount  as  would  at  six  per  cent,  interest  enable  it 
to  pay  off  the  government  bonds,  principal  and  interest,  by  the 
year  1905,  or  six  years  after  their  latest  maturity. 


646  The  Pacific  Railroads  and  the  Government.         [Sept, 

With  respect  to  their  proposal  to  return  the  granted 
lands  in  the  regions  specified,  the  companies  said  that  these 
lands,  since  the  building  of  the  road,  have  become  valuable  for 
grazing  uses,  and  are  with  the  government  lands  adjoining 
them  in  demand  for  that  purpose  at  rates  even  greater  than 
$1.25  per  acre.  That  for  such  use,  however,  they  must  be  sold 
in  large  tracts  of  from  50,000  to  100,000  acres,  located  with 
reference  to  the  water  supply  and  other  requisite  natural 
features.  But  as  they  are  now  are  held  in  alternate  rectangu- 
lar sections  of  640  acres  each,  "  like  a  checker  board,''  by  the 
Government  and  the  companies,  some  of  which  contain  the 
only  streams  for  many  square  miles  while  others  are  totally 
destitute  of  water,  they  are  completely  unsaleable,  and  are 
overrun  by  trespassers  who  take  advantage  of  this  divided 
ownership  to  benefit  themselves  without  paying  tribute  to  any- 
body. That  it  is  therefore  for  the  best  interest  both  of  the 
Government  and  the  companies  that  the  proposed  transfer 
should  be  made,  and  that  from  the  necessity  of  the  case  such 
transfer  to  one  of  the  two  parties  is  sure  eventually  to  come. 
In  the  meantime  the}^  complain  that  these  lands  so  "munifi- 
cently deeded  to  them  by  the  Government  as  a  generous  gift," 
are  not  only  worthless  to  them  in  their  present  shape  but  are  a 
heavy  burden  of  expense  owing  to  the  oppressive  local  taxa- 
tion to  which  they  are  subjected  as  railroad  property.  Says 
Mr.  Huntington  in  his  argument  before  the  Judiciary  Com- 
mittee, "  They  tax  the  lands  and  make  the  railroad  property 
pay  everything.  One  year  we  paid  $39,000  gold  tax  in  one 
county.  I  guess  it  was  seven-eighths  of  the  tax  paid  in  the 
county  ;  they  will  tax  these  lands  right  away  from  us.  If 
the  Government  had  them  they  would  not.  They  get  up  a 
little  ring  and  form  a  county  with  perhaps  no  property  in  it 
at  all,  and  what  do  they  find?  They  find  thirty  or  forty 
miles  of  railroad  track  and  the  lands.  They  will  run  a 
county  from  the  taxes  on  that.  A  person  living  here  has  not 
much  idea  how  they  do  things  in  that  outlying  country.''  And 
he  intimated  to  the  Committee  that  if  the  Government  thought 
the  valuation  too  high  at  $1.25  per  acre  they  might  have 
the  lands  at  almost  any  rate  they  might  choose,  as.  although 
valuable  and  marketable  in  proper  shape,  they  are  in  their 
present  form  a  ruinous  possession. 


1878.]  The  Pacific  Raihvads  and  the  Government.  647 

With  regard  to  the  extension  of  time  for  payment  to  five 
years  beyond  the  maturity  of  the  bonds  the  companies  sug- 
gested that  the  request  was  not  unreasonable  in  view  of  their 
proposition  to  pay  the  greater  part  of  them  within  twenty 
years  from  their  date  or  several  years  before  any  of  them  are 
due,  and  in  view  of  the  farther  fact  that  the  road  was 
opened  for  government  use  seven  years  before  the  time  named 
in  the  charter.  This  early  construction  they  show  was  accom- 
plished at  a  vastly  increased  expense  to  the  companies  in  the 
cost  of  construction,  but  to  a  more  than  corresponding  advan- 
tage to  the  Government  and  the  public.  Apart  from  the 
immense  political  and  commercial  benefits  accruing  from  this 
early  opening  of  the  road,  they  estimate  that  the  direct  sav- 
ing to  the  national  treasury  during  the  seven  years  thus 
saved,  would  if  funded  at  six  per  cent.,  more  than  cancel  the 
whole  amount  of  government  bonds  at  their  maturity. 

Notwithstanding  these  suggestions,  the  proposition  of  the 
companies  was  ignored  in  Congress,  and  scouted  as  "  impu- 
dent" by  the  public  press.  The  lands  so  "  valuable"  when 
granted  to  the  companies,  although  then  remote  and  inac- 
cessible, became  "  worthless"  when  the  companies  proposed 
to  return  them  to  the  Government  traversed  by  a  national 
thoroughfare,  on  the  edge  of  civilized  society  and  in  demand 
for  occupancy.  And  the  request  that  five  years  extension 
of  time  might  be  allowed  for  final  payment,  although  coupled 
vith  security  for  the  whole  debt  and  the  prepayment  of  its 
greater  portion  was  regarded  as  little  less  than  insulting  to  the 
generous  and  forbearing  nation  which  had  already  been  bene- 
fited tenfold  the  amount  of  its  investment.  The  bill  pro- 
posed by  the  Companies  therefore  made  no  progress  beyond  its 
presentation  and  dropped  entirely  out  of  the  consideration  of 
Congress. 

The  bill  presented  by  the  Eailroad  Committee  was  accom- 
panied by  a  report  in  which  the  Committee  took  the  ground 
that  whatever  might  be  the  legal  merits  of  the  questions  in 
controversy  between  the  Government  and  the  corporations  it 
was  best  for  both  parties  to  a  reach  some  common  ground 
whe:eby  their  several  interests  may  be  conserved  and  their 
conflicting  views  relative  thereto  fairly,  justly,  and  equitably 


648  The  Pacific  Railroads  and  the  Government.         [Sept., 

adjusted."  They  therefore  decline  to  discuss  these  questions 
of  legal  right,  and  devote  themselves  to  considering  not  ':  what 
Congress  has  the  power  to  do,"  but  what  it  "  may  most  wisely 
do,  in  view  of  the  past  history,  the  present  condition,  and 
the  future  prospects  of  the  roads."  They  suggest  that  u  one  of 
the  greatest  interests  that  the  Government  and  the  people  can 
have  in  these  roads  is  in  the  maintenance  of  a  high  standard 
of  perfection,  assuring  rapid  and  safe  transportation  of  freight  and 
passengers  over  the  lines."  That  "  to  impose  harsh  terms  upon 
these  companies,  and  to  exact  from  them  burdensome  and 
embarrassing  payments"  would  not  only  result  in  vexatious  liti- 
gation, but  if  sustained  by  the  Courts  would  impair  the  credit 
and  finances  of  the  companies,  endanger  the  safety  of  the 
roads,  and  cause  an  increase  of  their  rates  of  charge,  to  the 
serious  injury  of  the  public  and  an  increased  cost  to  the  Gov- 
ernment. They  announce  therefore  that  in  framing  their  bill 
they  have  endeavored  "  to  meet  the  subject  in  a  spirit  of  prac- 
tical adjustment,  in  order  to  secure  to  the  United  States 
ultimate  repayment  of  the  full  amount  of  advances  to  these 
corporations  without  harsh  or  unnecessary  embarrassment  to 
them." 

The  principal  features  of  the  plan  presented  by  the  Railroad 
Committee  were  as  follows :  The  commencement  of  a  sinking 
fund  by  crediting  the  Union  Pacific  and  the  Central  Pacific 
Companies  respectively  with  one  million  dollars  from  the  re- 
tained transportation  dues  belonging  to  them  in  the  hands  of 
the  Government.  Each  company  to  pay  to  such  sinking  fund 
annually  one  million  dollars  until  October  1,  1900.  The  sink- 
ing fund  to  bear  interest  at  six  per  cent.,  and  its  amount  to  be 
applied  on  the  1st  day  of  October,  1900,  to  the  liquidation  of 
the  government  bonds.  The  balance  remaining  unpaid  by 
the  companies  to  be  then  divided  into  fifty  equal  parts,  one 
part  to  be  paid  semi-annually  with  interest  by  the  corpora- 
tions, thus  extinguishing  the  whole  debt  by  1925.  This  propo- 
sition of  the  Government  to  be  accepted  by  the  companies 
before  it  should  be  binding  on  them,  and  if  after  such  accept- 
ance they  should  fail  to  perform  any  of  its  conditions,  Corgress 
to  have  full  power  to  alter,  amend,  or  repeal  this  act  with 
respect  to  the  company  so  making  default.     It  was  well  under- 


1878.]         The  Pacific  Railroads  and  the  Government.  649 

stood  that  this  bill,  if  passed,  would  be  accepted  by  the  com- 
panies as  an  adjustment  of  the  controversy,  but  although 
strongly  supported  by  several  of  the  ablest  lawyers  in  the 
Senate,  the  general  sentiment  was  against  it  as  offering  too 
liberal  terms  of  settlement  and  it  failed  to  obtain  a  majority 
support. 

The  bill  presented  by  the  Judiciary  Committee  and  which 
passed  the  Senate  by  a  vote  of  41  to  19,  and  shortly  after- 
wards the  House  almost  without  debate  and  with  but  two  dis- 
senting voices,  was  of  a  far  more  radical  character.  As  this 
enactment  is  one  of  the  greatest  importance  not  only  with 
respect  to  the  companies  whose  rights  and  interests  it  imme- 
diately affects,  but  indirectly  to  all  parties  who  deal  with  the 
Government  and  rely  on  its  good  faith  to  maintain  unchanged 
their  contract  rights,  so  long  as  they  fulfill  on  their  part  their 
contract  obligations,  we  shall  consider  its  provisions  with  some 
particularity.  And  as  preliminary  to  this  it  will  be  necessary  to 
bring  together  into  one  view  those  provisions  of  the  charter  by 
which  the  Government  granted  its  subsidy  of  bonds,  the  con- 
ditions of  the  grant  as  therein  stated,  the  terms  of  payment 
which  they  prescribed,  and  the  limitations  within  which  Con- 
gress agreed  to  restrict  itself  with  respect  to  any  future  change 
of  this  organic  law  or  alteration  of  its  proffered  terms. 

The  only  part  of  any  act  in  which  the  issue  of  the  bonds  is 
provided  for  is  Section  5  of  the  act  of  1862.  By  the  same 
section  it  is  enacted  that  uto  secure  the  repayment  to  the 
United  States  as  hereinafter  provided  of  the  amount  of  said 
bonds  so  issued  and  delivered  to  said  company,  together  with 
all  interest  thereon  which  shall  have  been  paid  by  the  United 
States,  the  issue  of  said  bonds  and  delivery  to  said  company 
shall  ipso  facto  constitute  a  first  mortgage  [by  act  of  1864 
changed  to  a  'second  mortgage']  on  the  whole  line  of  the  rail- 
road and  telegraph,  together  with  the  rolling  stock,  fixtures,  and 
property  of  every  kind  and  description,"  and  that  "on  the 
refusal  or  failure  of  the  company  to  redeem  said  bonds,  or  any 
part  of  them,  the  whole  road  with  all  the  rights,  functions,  im- 
munities and  appurtenances  thereto  belonging  "  should  be  taken 
possession  of  by  the  United  States. 

Section  6  then  declares  in  express  language  the  condition  of 

vol.  i.  42 


650  The  Pacific  Railroads  and  the  Government.         [Sept., 

the  grants  (and  under  the  well  settled  rule  of  construction 
expressio  unius,  exclusio  alterius,  their  sole  condition),  viz :  "  And 
be  it  further  enacted,  that  the  grants  aforesaid  are  made  upon 
condition  that  said  company  shall  pay  said  bonds  at  maturity 
and  shall  keep  said  railroad  and  telegraph  line  in  repair  and 
use,  and  shall  at  all  times  transmit  despatches  over  said  telegraph 
line,  and  transport  mails,  troops,  and  munitions  of  war,  supplies 
and  public  stores  upon  said  railroad  for  the  Government  when- 
ever required  by  any  department  so  to  do,  and  that  the  Govern- 
ment shall  at  all  times  have  the  preference  in  the  use  of  the 
same  for  the  purposes  aforesaid  (at  fair  and  reasonable  rates  of 
compensation,  not  to  exceed  the  amounts  paid  by  private  par- 
ties for  the  same  kind  of  service),  and  all  compensation  [by 
act  of  1864  changed  to  "one-half  the  compensation"]  for 
services  rendered  for  the  Government,  shall  be  applied  to  the 
payment  of  said  bonds  and  interest  until  the  whole  amount  is 
fully  paid.  *  *  *  And  after  said  road  is  completed  until  said 
bonds  and  interest  are  paid,  at  least  five  per  centum  of  the  net 
earnings  of  said  road  shall  also  be  annually  applied  to  the  pay- 
ment thereof." 

And  again  (Section  17),  it  is  enacted  that  "in  case  said  com- 
pany or  companies  shall  fail  to  comply  with  the  terms  and  con- 
ditions of  this  act,  by  not  completing  said  road  and  telegraph 
and  branches  within  a  reasonable  time,  or  by  not  keeping  the 
same  in  repair  and  use,  Congress  may  pass  any  act  to  insure 
the  speedy  completion  of  said  road  and  branches,  or  to  put  the 
same  in  repair  and  use,"  &c,  &c.  And  finally,  in  Section  18, 
to  guard  still  farther  against  any  apprehensions  of  Government 
interference  with  the  companies,  or  their  contract  relations  in 
case  they  should  faithfully  build  the  roads  and  perform  the 
conditions  of  the  grants  as  previously  specified,  a  limited  power 
of  amendment  to  the  charter  is  alone  reserved  in  the  following 
words. 

"  And  the  better  to  accomplish  the  object  of  this  act,  namely, 
to  promote  the  public  interest  and  welfare  by  the  construction 
of  said  railroad  and  telegraph  line,  and  keeping  the  same  in 
working  order,  and  to  secure  to  the  Government  at  all  times, 
but  particularly  in  time  of  war,  the  use  and  benefits  of  the 
same  for  postal,  military,  and  other  purposes,  Congress  may  at 


1878.]  The  Pacific  Railroads  and  the  Government.  651 

any  time,  having  due  regard  for  the  rights  of  said  Companies  named 
herein,  add  to,  alter,  amend  and  repeal  this  act." 

The  act  of  1864,  as  we  have  already  seen,  was  passed  by 
Congress  two  years  after,  not  for  the  purpose  of  restricting  the 
privileges  granted  by  the  act  of  1862,  but  avowedly  to  enlarge 
them,  those  offered  by  that  act  having  proved  inadequate  to 
attract  the  desired  and  needful  aid  of  private  parties  to  the 
work.  It  is  of  course  a  distinct  enactment,  passed  by  a  different 
Congress,  and  bears  the  title  "An  Act  to  amend  an  act  entitled 
"an  act  to  aid  in  constructing  a  railroad  and  telegraph  line  from 
the  Missouri  Eiver  to  the  Pacific  Ocean,"  etc.  It  contains  twenty- 
two  sections,  some  of  them  repealing  portions  of  the  act  of 
1862,  some  enlarging  the  privileges  granted,  and  others  embrac- 
ing entirely  new  matter.  In  all  its  parts  it  refers  to  the  act  of 
1862  as  a  separate  act,  "  the  act  to  which  this  act  is  amendatory." 
It  effects  its  changes  in  it  by  specific  reference  to  the  portions 
amended,  either  by  citation  of  the  section  or  quotation  of  the 
language,  or  its  substance.  It  increases  the  amount  of  the 
grants  as  respects  the  lands,  and  changes  the  security  and  terms 
of  payment  as  respects  the  government  bonds,  but  nowhere 
does  it  suggest  that  "the  conditions  of  the  grants  "  or  "the 
object  of  the  act "  are  different  from  those  above  recited  in  the 
act  of  1862.  Nowhere  is  there  a  reference  to  the  limited  right 
of  amendment  reserved  by  the  act  of  1862  as  a  part  of  that 
act  which  is  designed  to  be  amended,  but  it  closes  with  the  fol- 
lowing section:  "Section  22.  And  be  it  further  enacted,  that 
Congress  may  at  any  time  alter,  amend  or  repeal  this  act." 

There  was  considerable  discussion  in  Congress  over  the  pas- 
sage of  this  amendatory  act  of  1864,  but  one  will  search  in 
vain  through  the  debates  for  any  intimation  by  friend  or  foe  that 
this  last  section  was  regarded  as  vesting  in  Congress  the  right 
to  "  alter,  amend  and  repeal  "  at  its  discretion  or  caprice,  any 
and  every  provision  of  the  contract  embraced  in  the  act  of 
1862.  So  far  from  this,  when  it  was  proposed  to  amend  the  bill 
by  requiring  the  company  to  perform  government  service  free 
of  charge,  Mr.  Stevens  declared  without  being  controverted,  that 
it  would  be  a  violation  of  the  contract  contained  in  the  act  of 
1862  and  an  unfair  alteration  of  its  fundamental  conditions.  "  I 
hope,"  he  said,  "  that  every  facility  will  be  given  by  the  Govern- 


652  The  Pacific  Railroads  and  the  Government.         [Sept., 

merit  for  the  building  of  this  road,  and  that  least  of  all  it  will 
not  violate  the  original  law  or  charter  under  which  this  com- 
pany was  organized."  "I  do  not  think  it  fair  and  legitimate 
now  to  go  back  to  the  original  law  and  attempt  to  change  its 
entire  scope  and  meaning  and  thereby  defeat  its  object  after  men 
have  invested  their  money,  relying  on  its  provisions."  Such 
was  the  language  in  Congress  when  capital  was  timid  of  embark- 
ing in  the  enterprise,  and  when  it  was  necessary  to  encourage 
it  with  a  strong  assurance  that  the  Government  would  abide  by 
its  original  contract  unimpaired.  And  if  as  a  question  of  good 
faith  such  scruples  were  worthy  of  consideration  in  1864  when 
the  road  was  scarcely  commenced,  with  bow  much  greater  force 
are  they  now  invested,  nine  years  after  its  opening,  when  it 
has  been  fully  and  fairly  completed  and  operated  according  to 
the  terms  of  the  contract,  has  already  saved  to  the  government 
treasury  more  than  the  amount  of  its  advances,  and  has  re- 
turned to  the  nation  in  the  enhanced  value  of  the  public  prop- 
erty, and  in  the  direct  public  benefits  it  has  conferred  at  least 
five  fold  the  amount  of  the  national  loan  ;  and  when  moreover 
its  securities  amounting  to  over  a  hundred  millions  of  dollars 
are  held  by  thousands  who  purchased  them  in  reliance  on  the 
fidelity  of  the  Government  to  its  own  agreements  as  expressed 
in  the  existing  charter  of  the  road. 

Quite  different,  however,  was  the  point  of  view  from  which  the 
Judiciary  Committee  of  the  Senate  in  March,  1878,  considered 
the  subject.  In  their  report  presented  by  Senator  Thurman, 
introducing  their  bill,  they  do  not  even  allude  to  any  equities 
in  favor  of  the  corporations,  or  the  holders  of  their  stock  or 
securities,  or  to  any  obligation  on  the  part  of  the  Government 
in  fairness  and  good  faith  to  abide  by  its  contract  even  at  the 
risk  of  loss.  Ignoring  all  those  considerations,  the  Judiciary 
Committee  devote  themselves  simply  to  an  argument  in  favor 
of  altering  the  charter.  Their  process  of  reasoning  is  interest- 
ing and  significant.  The  first  consideration  they  advance  is 
that  the  companies  are  able  to  pa}'  more  to  the  Government 
annually  than  their  charter  requires — and  the  Committee  add, 
"  we  think  their  net  earnings  will  not  be  less  in  the  future." 
This  point  disposed  of  they  next  inquire  whether  Congress  has 
the  legal  right  to  alter  the  terms  of  the  contract,  the  companies 


1878.]         The  Pacific  Railroads  and  the  Government.  653 

having  fulfilled  its  obligations  on  their  part.  Here  the  act  of 
1862  first  engages  their  attention  as  reserving  to  Congress  no 
right  to  alter,  amend,  or  repeal  the  charter,  except  "  in  order  to 
promote  the  construction  of  the  railroad  and  telegraph  line,  and 
keeping  the  same  in  working  order,  and  to  secure  to  the  Govern- 
ment at  all  times,  but  particularly  in  time  of  war,  the  use  and 
benefits  of  the  same  for  postal,  military  and  other  purposes." 
The  reply  of  the  Committee  to  this,  is,  at  least,  ingenious. 
They  say,  "  were  this  limited  interpretation  placed  on  the 
reservation,  it  would  not  in  the  opinion  of  your  Committee 
defeat  the  bill  they  report.  For,  although  said  roads  and  tele- 
graph lines  have  been  constructed,  yet  it  is  manifest,  having 
reference  to  their  pecuniary  condition,  that  some  such  measure 
as  that  now  recommended  is  necessary  in  order  to  keep  them  in 
working  order,  and  to  secure  to  the  Government  at  all  times  the 
use  and  benefit  of  the  same  (!)  It  needs  no  argument  to  prove 
that  insolvent  corporations,  or  corporations  in  danger  of  insolv- 
ency [i.  e.  twenty  years  hence  when  the  government  bonds 
mature],  cannot  be  relied  upon  to  furnish  the  Government  the 
benefits  contemplated  by  said  act."  But  evidently  considering 
this  point  rather  a  strained  one,  they  fall  back  on  another,  viz  : 
u  It  cannot  be  denied  that  the  right  [of  alteration]  reserved  in 
the  amendatory  act  of  1864  is  as  broad  as  words  can  make  it." 
In  response  to  the  objection,  "  that  this  right  applies  only  to 
the  act  of  1864,  and  does  not  authorize  any  alteration  or 
amendment  of  the  act  of  1862,"  the  Committee  say  that  "  were 
this  so  it  would  not  defeat  the  bill  of  your  Committee,  for  it 
might  well  be  sustained  as  an  amendment  to  the  act  of  1864." 
To  recognize  the  act  of  1864  as  a  separate  statute,  however, 
was  to  take  dangerous  ground,  from  which  the  Committee  get 
off  as  soon  as  possible.  u  But  it  seems  to  your  Committee," 
the  report  proceeds,  "  that  said  acts  should  be  considered  in 
pari  materia,  as  constituting  for  purposes  of  interpretation  but 
one  act,  and  that  consequently  the  power  to  alter,  amend  or 
repeal  reserved  in  the  act  of  1864,  which  is  the  last  expression 
of  the  legislative  will,  applies  to  both  said  acts."  They  cite  no 
authorities  to  sustain  this  view,  but  refer  to  various  judicial 
decisions  in  support  of  the  undisputed  doctrine,  that  privileges 
granted  to  corporations  which  become  detrimental  to  the  public 


654  The  Pacific  Railroads  and  the  Government.         [Sept., 

interest  may  be  repealed,  whether  such  power  of  repeal  is 
reserved  or  not  by  their  charters.  As,  however,  this  does  not 
quite  reach  the  case  of  a  mere  business  contract  between  the 
Government  and  the  corporations  for  the  loan  and  repayment 
of  money,  the  Committee  are  prepared  to  go  a  little  farther  if 
necessary,  and  to  assert  the  full  power  of  Congress  in  any  case 
to  repeal  or  alter  the  terms  of  a  bargain,  "  especially  if  the  other 
contracting  party  is  a  corporation,  public,  or  quasi  public." 
They  say,  "No  State  can  make  a  law  impairing  the  obligation 
of  a  contract  because  that  is  prohibited  by  the  Federal  Consti- 
tution. But  there  is  no  such  prohibition  upon  Congress;  and  as 
it  is  a  fundamental  principle  that  one  Congress  cannot  limit 
the  constitutional  powers  of  a  subsequent  Congress,  it  may  be 
argued  that  no  mere  corporate  franchise  can  be  granted  by  one 
Congress  that  a  subsequent  Congress  may  not  alter,  amend,  or 
repeal."  And  so  being  satisfied  that  the  companies  are  rich 
enough  to  pay  more,  and  that  Congress  has  the  legal  power  to 
make  them,  the  Committee  regard  the  whole  subject  as  conclu- 
sively disposed  of  and  recommend  the  passage  of  their  bill. 

In  pursuance  of  these  advanced  views  of  Congressional 
powers  over  contracts  irrespective  of  governmental  justice  and 
good  faith,  the  Judiciary  Committee  Bill  provided  substantially 
as  follows  : 

First,  That  from  and  after  June  30,  1878,  the  "  net  earnings" 
mentioned  in  the  act  of  1862  shall  be  ascertained  by  deducting 
from  the  gross  earnings  of  the  Eailroad  Companies  their  ex- 
penses of  operating  and  repair,  and  their  payments  of  first 
mortgage  interest,  but  no  other  interest  payments  whatever, 
"  and  the  foregoing  provision  shall  be  deemed  and  taken  as  an 
amendment  to  the  act  of  1864  as  well  as  of  the  act  of  1862." 

Second,  That  the  Government  shall  hereafter  retain  the  whole 
amount  of  its  annual  transportation  dues  to  the  companies,  one 
half  to  be  applied  to  paying  the  current  interest  on  the  govern- 
ment bonds,  and  the  other  half  to  a  sinking  fund  for  the  pay- 
ment of  the  principal. 

Third,  That  the  Central  Pacific  Company  shall  pay  annually 
in  cash  to  the  Government  $1,200,000,  and  the  Union  Pacific 
Company  $850,000,  or  so  much  respectively  as  shall  make  the 
annual  amount  carried  to  the  sinking  fund  twenty-five  per  cent. 


1878.]         The  Pacific  Railroads  and  the  Government.  §ob 

of  the  net  earnings  of  each  road  estimated  as  above  provided. 
Except  that  if  in  any  year  either  company  after  actually  paying 
its  first  mortgage  interest  should  not  have  twenty-five  per  cent. 
of  its  net  earnings  left  to  meet  the  government  demands,  the 
Secretary  of  the  Treasury  may  remit  the  deficiency. 

Fourth,  That  any  officer  or  stockholder  who  shall  vote,  make, 
or  receive  any  dividend  while  any  of  the  above  required  pay- 
ments shall  be  in  default,  "shall  be  liable  to  the  United  States 
for  the  amount  of  such  dividends  ;"  and  to  knowingly  vote, 
declare,  make,  or  pay  such  dividend  shall  be  punishable  "by  a 
fine  not  exceeding  $10,000,  and  by  imprisonment  not  exceeding 
one  year." 

Fifth  (Section  9),  That  all  indebtedness  to  the  United  States, 
u  whether  payable  presently  or  not,  and  all  sums  required  to  be 
paid  to  the  United  States,  or  into  the  Treasury,  or  into  the 
sinking  fund  under  this  act,  or  under  the  acts  of  1862  and  1864, 
or  otherwise,  are  hereby  declared  to  be  a  lien  on  all  the  property, 
estate,  rights  and  franchises  of  every  description  granted  by  the 
United  States  to  any  of  said  companies  respectively  or  jointly, 
and  also  upon  all  the  estate  and  property,  real,  personal,  and 
mixed,  assets  and  income  of  the  said  several  railroad  companies 
respectively,  from  whatever  source  derived,  subject  to  any  lawfully 
prior  and  paramount  mortgage  lien  or  claim  thereon."* 

Sixth.  That  any  failure  for  six  months  by  either  company 
"to  perform  all  and  singular  the  requirements  of  this  act,  and 
of  the  acts  hereinbefore  mentioned  and  of  any  other  act  relating 
to  said  company,  shall  operate  as  a  forfeiture  of  all  the  rights, 
privileges,  grants  and  franchises  derived  or  obtained  by  it  from 
the  United  States;  and  it  shall  be  the  duty  of  the  Attorney- 
General  to  cause  such  forfeiture  to  be  judicially  enforced." 

Seventh.  (Section  12)  "That  nothing  in  this  act  shall  be  con- 
strued or  taken  in  any  wise  to  affect  or  impair  the  right  of 

*  This  astonishing  section  was  only  at  the  last  moment  amended  by  adding  the 
following  clause.  "  But  this  section  shall  not  be  construed  to  prevent  said  com- 
panies respectively  from  using  and  disposing  of  any  of  their  property  or  assets  in 
the  ordinary,  proper,  and  lawful  course  of  their  current  business,  in  good  faith 
and  for  valuable  consideration."  It  is  obvious  that  as  reported  by  the  Com- 
mittee, the  section  amounted  to  confiscation  of  the  whole  "  property,  assets,  and 
income"  of  the  companies,  and  precluded  them  from  paying  a  dollar  for  even 
current  expenses,  and  from  selling  an  acre  of  land  or  a  pouDd  of  old  iron. 


656  The  Pacific  Railroads  and  the  Government         [Sept., 

Congress  at  any  time  hereafter,  further  to  alter,  amend  or  repeal 
the  said  acts  hereinbefore  mentioned ;  and  this  act  shall  be 
subject  to  alteration,  amendment  or  repeal  as  in  the  opinion  of 
Congress,  justice  or  the  public  welfare  may  require.  And 
nothing  herein  contained  shall  be  held  to  deny,  exclude  or  impair 
any  right  or  remedy  in  the  premises  now  existing  in  favor  of 
the  United  States." 

Eighth.  (Section  13)  "That  each  and  every  of  the  provisions 
in  this  act  contained,  shall  severally  and  respectively  be  deemed, 
taken  and  held  as  in  alteration  and  amendment  of  said  act  of 
1862,  and  of  said  act  of  1864  respectively,  and  of  both  said 
acts." 

This  extraordinary  bill,  which  was  justly  characterized  in 
the  Senate  as  "one  of  the  most  deliberate  attacks  upon  the 
rights  of  property  and  contract  in  the  annals  of  legislation," 
afterwards  passed  both  Houses  of  Congress  by  large  majorities 
and  is  now  the  law  of  the  land.  That  its  provisions  are  in 
many  respects  a  wide  variation  from  the  offers  and  promises 
which  Congress  held  out  to  the  companies  in  1862  and  1864, 
as  considerations  for  building  the  road,  its  supporters  freely 
admit.  That  Congress  has  no  constitutional  or  moral  right  to 
impair  the  obligations  of  a  contract  is  also  conceded.  Notwith- 
standing the  intimation  which  we  have  cited  from  the  report, 
that  Congress  may  alter  contracts  because  it  is  not  prohibited 
from  so  doing  by  the  Federal  Constitution,  the  better  doctrine 
had  been  admitted  by  Mr.  Thurman  during  a  previous  debate 
on  the  bill  that  Congress  had  no  such  power  because  it  is  not 
conferred  by  the  Federal  Constitution.  But  the  claim  made  by 
the  supporters  of  the  bill  was,  as  we  have  seen,  that  the  reserva- 
tion to  alter  or  amend  the  act  of  1864,  binds  the  companies  as 
a  part  of  the  contract  of  1862,  and  Senator  Thurman  declared 
in  the  course  of  the  debate  in  language  which  reads  more  like 
sarcasm  than  sincerity,  that  "the  companies  by  accepting  the  act 
of  1864  consented  to  this  unlimited  power  of  Congress  to  alter, 
amend,  or  repeal,  and  gladly  consented  to  it,  for  they  were  get- 
ting the  greatest  bargain  that  ever  corporations  obtained  from 
any  Government  on  the  face  of  the  earth." 

It  may  be  that  the  corporations  in  1864,  relying  on  the  good 
faith  of  the  Government  to  abide  by  its  "  bargain  "  as  then 


1878.]         The  Pacific  Railroads  and  the  Government  657 

agreed  upon,  considered  that  they  were  obtaining  a  liberal  con- 
tract, though  it  is  certain  that  not  only  then  but  for  three  years 
afterwards  they  found  it  difficult  to  convince  others  of  the  fact. 
It  may  be  that  they  accepted  the  act  of  1864  under  an  idea  that 
it  was  in  fact,  what  it  professed  to  be,  an  enlargement  of  Govern- 
ment "generosity"  previously  inadequate.  But  if  they  did  they 
must  have  felt  in  1878,  much  the  same  bewilderment  at  their 
mistake  as  the  victim  of  the  thimble  rigger  experiences  when  he 
sees  his  expected  gains  swept  swiftly  off  the  board,  and  learns  for 
the  first  time  what  cover  "the  little  joker"  was  under. 

It  will  be  impossible  in  the  brief  space  allotted  to  us  to  dis- 
cuss fully  all  the  provisions  of  this  act  (several  of  which  indeed 
we  have  been  compelled  to  omit  in  our  analysis),  and  we  must 
content  ourselves  with  a  very  hasty  review  of  the  general  fea- 
tures we  have  mentioned.  It  will  be  observed  that  it  first 
assumes  to  impose  its  own  construction  on  the  words  "net 
earnings"  as  used  in  the  original  contract,  without  regard  to 
the  meaning  of  those  words  which  was  had  by  both  parties 
when  the  contract  was  made.  And  accordingly  Senator  Thur- 
man,  when  reminded  that  the  meaning  of  the  words  "  net  earn- 
ings "  in  the  act  of  1862  was  now  before  the  Courts  for  adjudi- 
cation, replied  that  he  was  "  not  willing  to  wait  for  the  slow 
process  of  litigation.  "It  would  be  no  objection  to  me,"  he 
added,  "  if  the  Supreme  Court  were  to  decide  to-day  that  the 
companies'  interpretation  of  'net  earnings'  is  the  true  inter- 
pretation. All  I  should  have  to  say  would  be  that  there  is  so 
much  the  more  necessity  for  this  legislation  to  secure  the 
Government.  That  would  be  all  I  should  have  to  say  in 
reply  to  that."  With  a  shrewd  reference,  however,  to  the 
possibility  that  the  decision  of  the  Courts  on  this  point 
might  be  in  the  Government's  favor,  the  act  while  "  amending  " 
the  sense  of  the  words  for  the  future  has  carefully  guarded 
against  waiving  the  claim  of  the  Government  based  upon  its 
own  interpretation  of  them  in  the  past,  and  provides  that  this 
amendment  "shall  not  affect  any  right  of  the  United  States  or 
of  either  of  said  railroad  companies  existing  prior  thereto." 
Having  thus  amended  a  new  meaning  into  the  language  of  the 
original  bargain,  the  next  step  is  to  alter  the  language  itself. 
The  Supreme  Court  had  checked  a  previous  attempt  to  collect 


658  The  Pacific  Railroads  and  the  Government         [Sept., 

from  the  companies  annually  on  account  of  the  government 
loan  anything  more  than  the  terms  of  the  loan  required  them 
to  pay,  viz :  one-half  of  the  transportation  dues  and  five  per 
cent,  of  their  net  earnings.  The  effect  of  the  original  con- 
tract having  thus  been  judicially  settled,  nothing  remained 
but  to  change  it  out  and  out,  and  they  are  now  subjected  to 
paying  all  the  transportation  dues  and  twenty -five  per  cent  of 
their  "  net  earnings  "  as  computed  under  the  amended  rule.  It 
is  easy  to  see  that  this  enormous  increase  of  annual  liability  of 
the  companies  antecedent  to  the  accruing  interest  on  their 
funded  debts  of  the  second  and  third  classes  (the  Union  Pacific 
alone  has  over  twenty  millions  of  land  grant  and  sinking  fund 
bonds),  might  in  a  dull  or  unfortunate  season  or  under  the 
future  competition  which  is  preparing  on  both  sides  of  them, 
imperil  their  ability  to  meet  their  obligations  and  result  not 
only  in  ruin  to  the  companies  but  in  wide  spread  disaster  to 
the  holders  of  these  securities.  Nevertheless  the  rights  of  these 
holders,  which  any  Court  of  Equity  would  protect  against 
alterations  of  prior  contracts,  are  absolutely  ignored  by  the  new 
law.  Even  the  first  mortgage  bondholders,  whose  interests 
it  professes  to  recognize,  are  exposed  to  a  similar  sacrifice,  for 
the  law  by  appropriating  the  revenues  of  the  roads  to  pay  the 
government  bonds  before  they  become  due,  has  given  them 
priority  over  those  of  the  first  mortgage,  and  leaves  to  the  latter 
as  security  only  what  will  remain  after  the  government  loan 
has  been  paid,  principal  and  interest  in  cash.  Moreover  the 
11th  section  provides  that  "in  case  of  failure  for  six  months" 
by  the  companies  to  pay  these  new  demands  of  the  Govern- 
ment, or  any  government  claim  under  this  "or  any  other  act  of 
Congress  or  right  of  the  United  States,"  the  Attorney-General 
shall  seize  the  roads,  and  in  such  case  what  would  the  first 
mortgage  securities  be  worth?  Nor  is  this  all.  The  first 
mortgage  creditors  quite  as  much  as  any  others  are  interested 
that  the  road  should  be  maintained  in  the  best  possible  condi- 
tion ;  that  its  general  credit  should  be  high,  and  its  finances 
unembarrassed,  and  that  the  owners  of  the  property  should  be 
free  to  manage  its  affairs  in  such  way  as  best  to  promote  the 
prosperity  of  the  enterprise.  The  9th  section,  however 
(although  by  the  amendment  to  which  we  have  adverted,  it  has 


1878.]  The  Pacific  Railroads  and  the  Government  659 

been  modified  from  actual  confiscation),  still  prevents  the 
companies  from  accumulating  a  dollar  in  their  treasury  in 
advance  as  a  fund  for  the  most  pressing  contingencies,  from 
incurring  any  expenses  for  the  enlargement  of  their  business 
by  building  branches  or  otherwise,  or  from  making  any  provi- 
sion whatever  by  sinking  funds  to  redeem  even  their  first 
mortgage  bonds.  The  section  referred  to  makes  all  liabilities 
to  the  United  States  whatever,  present  or  future,  a  lien  on  all 
the  property,  estate,  and  franchises,  of  the  companies,  "subject 
to  any  lawfully  prior  and  paramount  claim  thereon,"  but  prop- 
erty maybe  "  actually  used  and  disposed  of  in  the  ordinary, 
proper,  and  lawful  course  of  current  business,  in  good  faith  and 
for  valuable  consideration."  It  is  obvious  that  there  is  nothing 
here  to  protect  a  sinking  fund  accumulated  for  the  payment  of 
first  mortgage  bonds  which  have  not  matured,  against  seizure 
by  the  Government  to  pay  its  second  mortgage  bonds  that  have 
matured ;  nor  can  the  companies  take  up  or  buy  in  their  first 
mortgage  bonds  in  advance,  for  that  would  not  be  "in  the 
ordinary,  proper,  and  lawful  course  of  their  current  business." 

It  was  suggested,  during  the  discussions  over  this  act,  that 
the  validity  of  these  amendments  to  the  contract  or  some  of 
them  would  probably  be  tested  in  the  Courts ;  accordingly  the 
law  has  forestalled  any  such  purpose  on  the  part  of  the  com- 
panies. A  suit  of  this  character  would  occupy  at  least  a  year 
before  it  could  be  decided,  and  the  act  provides,  as  we  have 
already  seen,  that  a  failure  by  the  corporations  "  for  six  months" 
to  comply  with  any  requirement  of  this  or  any  other  act 
(whether  such  failure  be  willful  or  not,  and  whether  it  be 
unavoidable  or  not),  shall  ipso  facto  "  operate  as  a  forfeiture  of 
all  their  rights,  privileges,  and  franchises,"  "and  it  shall  be  the 
duty  of  the  Attorney-General  to  cause  such  forfeiture  to  be 
judicially  enforced."  Of  course  under  this  section  the  roads 
would  be  seized  before  a  judicial  decision  as  to  the  validity  of 
the  act  could  be  obtained  and  almost  before  the  suit  could  be 
fairly  begun. 

And  finally,  in  order  to  leave  ample  room  for  any  farther 
illustration  of  the  "  liberality "  and  "  generosity "  of  the 
Government  in  making  the  original  "bargain,"  the  right  is 
expressly  asserted,   to  impose  new  constructions  to  any  extent 


660  The  Pacific  Railroads  and  the  Government.         [Sept., 

on  the  meanings  of  the  acts  of  1862  and  1864,  and  that  both 
they  and  ''this  act,  shall  be  subject  to  alteration,  amendment, 
or  repeal,  as  in  the  opinion  of  Congress,  justice  or  the  public 
welfare  may  require.1'  What  future  possibilities  may  be  con- 
tained in  this  reservation  may  be  imagined  from  the  claim 
strongly  insisted  upon  by  Senator  Thurman,  that  it  would  be 
quite  legitimate  for  the  Government  when  its  bonds  mature  to 
demand  compound  interest  from  the  companies,  or  rather  (let  us 
give  his  words  exactly)  "interest  upon  the  instalments  of  inte- 
rest as  it  [the  Government]  paid  them."  "That,"  the  Senator 
assures  us,  "is  not  compounding  interest  because  the  interest 
upon  each  instalment  of  interest  paid  by  the  Government 
would  run  continually  without  rest  until  the  maturity  of  the 
bonds  ;  but  it  will  be  found  to  add  immensely  to  the  sum 
which  will  then  be  due  the  Government  and  carry  it  far 
beyond  200  millions."  It  is  certain  that  the  acts  of  1862  and 
1864  make  no  reference  whatever  to  such  interest  upon  interest, 
and  the  Senator's  distinction  between  it  and  compounding 
interest  may  not  be  very  apparent,  but  it  is  quite  superfluous 
to  discuss  any  questions  arising  on  these  points,  when  the  limit 
to  the  obligations  that  may  be  imposed  on  the  roads  is  made 
quite  irrespective  of  all  rules  of  legal  or  judicial  construction, 
and  is  such  only  "as  in  the  opinion  of  Congress,  justice  or 
[notice  the  conjunction !]  the  public  welfare  may  require." 

Our  limits  will  not  permit  us  to  review  the  debates  which 
preceded  the  passage  of  this  act,  but  it  would  be  unjust  to  the 
minority  in  the  Senate  who  opposed  it  with  vigor,  ability,  and 
learning,  not  to  refer  briefly  to  the  fact  that  the  positions 
assumed  in  its  support  were  contested  upon  grounds  of  good 
faith,  justice,  and  judicial  authority.  We  have  already  seen 
that  the  Eailroad  Committee  rested  their  bill  not  on  any  con- 
clusions as  to  the  legal  right  or  the  constitutional  power  of 
Congress  to  alter  a  contract,  and  chose  to  consider  only  the 
questions  of  good  faith  and  honor  involved  in  the  proceeding. 
Nevertheless  in  answer  to  the  adjudications  cited  by  the  Judici- 
ary Committee  to  the  effect  that  corporation  charters  are  always 
under  the  control  of  the  legislature,  it  was  pointed  out  that 
these  decisions  relate  to  the  power  of  Government  in  its  char- 
acter as  a  sovereignty,  and  not  at  all  to  its  legal  rights  as  a 


1878.]         The  Pacific  Railroads  and  the  Government.  661 

party  to  a  contract.  Numerous  authorities,  and  decisions  of 
the  highest  Courts  were  cited  to  sustain  the  distinction. 
"  When,"  says  Judge  Grier  of  the  Supreme  Court  of  the 
United  States,  in  the  case  of  Elliott  vs.  Yoorst  (3  Wallace,  Jr., 
302,)  "  the  Government  of  the  United  States  becomes  a  partner 
in  a  trading  corporation  such  as  that  of  the  United  States 
Bank,  it  divests  itself  so  far  as  concerns  the  transactions  of  that 
Compan}^,  of  its  sovereign  character,  and  takes  that  of  a 
citizen."  Of  course  it  follows  that  in  this  capacity,  as  a  vol- 
untary party  to  a  contract  it  is  as  much  bound  by  the  agree- 
ment as  the  other  party,  and  has  no  more  right  than  the  other 
to  change  it  without  mutual  consent.  As  to  the  claim  that 
Congress  acquired  unlimited  power  of  alteration  by  the  closing 
section  of  the  act  of  1864,  it  was  denied  that  such  a  construc- 
tion could  be  sustained  without  violently  wresting  that  clause 
from  its  proper  connection,  and  its  obvious  meaning,  and  with- 
out ignoring  the  general  rule  that  the  repeal  of  amendatory 
acts  revives  the  provisions  of  the  original  statutes.  It  is  clear 
that  if  its  application  can  be  so  stretched  over  the  whole  act  of 
1862,  no  contractor  with  the  Government  and  no  holder  of 
government  securities  can  ever  be  safe.  Suppose  the  act  of 
1864  or  some  subsequent  act  had  granted  but  one  new  privilege 
(the  right  to  cut  telegraph  poles  for  instance  on  the  public 
lands),  coupled  with  the  clause,  "  this  act  shall  be  subject  to  be 
altered,  amended  or  repealed  at  the  pleasure  of  Congress." 
Could  it  be  legally  or  justly  claimed  that  because  the  act 
related  to  the  Pacific  Kailroads,  it  was  therefore  in  pari  materia 
with  all  previous  acts,  and  that  whenever  the  corporations 
should  cut  down  a  single  telegraph  pole  by  virtue  of  its  per- 
mission, they  thereby  gave  to  Congress  full  power  to  alter, 
amend,  or  repeal  all  previous  contracts,  even  such  as  it  had 
pledged  itself  to  maintain  unimpaired?  Or  suppose  an  act  to 
be  passed  that  the  interest  on  the  gold-bearing  bonds  of  the 
United  States  might  be  paid  one  month  in  advance,  "provided 
that  this  act  shall  be  subject  to  amendment,  alteration,  or 
repeal."  Would  Congress  under  the  unlimited  right  of  repeal 
thus  reserved  be  justified  in  subsequently  repealing  the  orig- 
inal contract  that  the  principal  and  interest  of  the  loan  should 
be  payable  in  gold,  and  in  making  it  payable  thereafter  in  silver 


662  The  Pacific  Railroads  and  the  Government.         [Sept., 

or  greenbacks?  Yet  this  is  the  doctrine  contended  for  by  Mr. 
Thurman  and  sustained  by  the  majority  of  the  Senate,  and  it 
will  be  well  if  it  does  not  come  back  for  their  future  considera- 
tion in  some  form  in  which  repudiation  of  the  public  obliga- 
tions and  the  public  faith  will  be  more  odious  though  not  more 
real  than  in  the  case  of  the  Pacific  Railroad  charters.  It  is  a 
fundamental  doctrine  of  law  and  of  reason  that  a  contract  im- 
plies mutuality  of  obligation.  But  the  right  in  one  party  to 
change  or  repudiate  the  bargain  at  pleasure,  whether  it  results 
from  general  principles  or  from  express  reservation,  destroys 
such  mutuality,  and  with  it  the  contract  relation.  And  if  the 
stipulated  terms  of  a  loan  are,  in  the  case  of  a  corporation,  not 
a  contract  but  one  of  those  mere  corporate  franchises,  "  which," 
say  the  Judiciary  Committee,  M  any  subsequent  Congress  may 
alter,  amend  or  repeal,"  then  they  would  not  be  a  contract  in 
the  case  of  an  individual.  But  as  no  stronger  instance  of  a 
contract  can  well  be  imagined,  it  would  seem  to  follow  that 
Congress  is  incapable  by  any  act  of  binding  the  Government 
to  private  parties  in  any  contract  relation  whatever. 

It  is  surprising  that  these  views  had  so  little  influence  in 
Congress,  and  especially  in  the  minds  of  members  of  both 
Houses  who  have  heretofore  jealously  guarded  the  public  faith. 
In  reading  over  the  debates,  however,  and  the  comments  of 
the  public  press  while  the  measure  was  pending,  perhaps  a 
partial  explanation  may  be  discovered.  Allusions  to  "  Credit 
Mobilier  frauds,"  and  the  cry  of  "bribery  and  corruption  by 
railroad  lobbyists  who  swarm  on  the  floors  of  Congress,"  were 
copiously  used  to  deter  from  opposition  to  the  bill  and  with 
their  usual  paralyzing  effect.  The  companies  were  stigmatized 
as  "  rich  and  powerful  corporations  which  have  for  years  been 
defying  the  law,  and  are  now  seeking  to  defraud  the  public 
treasury."  It  was  of  little  consequence  that  the  "  Credit 
Mobilier  frauds"  were  a  myth,  and  that  the  Railroad  companies, 
especially  in  their  present  hands,  were  in  no  way  identified  with 
the  Credit  Mobilier.  As  to  railroad  lobbyists,  one  Senator  at 
least  declared  that  he  had  heard  much  of  their  presence  but 
never  to  his  knowledge  had  seen  any.  But  if  they  had  been 
as  numerous  and  as  active  as  a  swarm  of  Kansas  locusts,  they 
could   have  availed   but   little  against  the  clamors  and  the 


1878.]  The  Pacific  Railroads  and  the  Government.  663 

threats  of  that  greatest  of  lobby  agencies,  the  newspaper  press, 
which  with  one  voice  demanded  the  passage  of  the  bill  of  the 
Judiciary  Committee.  That  the  parties  affected  by  the  bill 
were  corporations  was  a  fact  which  could  not  be  gainsayed. 
One  Senator  referred  to  "  the  enormous  salaries  received  by 
officers  of  these  corporations,"  and  informed  the  country 
that  "  this  money  comes  from  the  Government,  and  every 
dollar  represents  the  sweat  and  the  toil  of  some  of  its 
citizens."  Another  Senator  sarcastically  alluded  to  an  oppo- 
nent of  the  bill  as  one  who  "  would  fold  his  hands  and  allow 
himself  to  be  placed  into  a  bag  and  placed  in  the  custody  of 
the  Union  Pacific  Kail  road."  "Give  a  dog  a  bad  name"  and 
there  are  few  who  will  interest  themselves  to  vindicate  his 
character  or  to  avert  his  inevitable  fate.  But  one  who  com- 
pares the  congressional  discussions  over  this  act  of  1878  with 
those  in  1862  and  1864  without  reference  to  intermediate  con- 
troversies will  learn  new  lessons  on  the  gratitude  of  republics 
and  the  value  of  government  promises.  Nothing  is  more 
manifest  throughout  the  debates  of  1862  and  1864  than  that 
Congress  considered  that  the  construction  of  the  road  and  the 
immense  political  and  material  benefit  to  be  derived  by  the 
country  therefrom  would  bring  so  full  a  compensation  for  its 
loan  of  government  credit  that  provision  for  pecuniae  pay- 
ment was  of  subordinate  consequence.  The  immense  saving 
in  the  expense  of  government  transportation  which  was  antici- 
pated, was  constantly  referred  to  as  amounting  to  an  offset  to 
the  annual  interest  on  the  government  bonds  and  even  largely 
to  the  principal  itself.  This  saving  has  been  more  than  real- 
ized. From  nearly  eight  millions  prior  to  1862  (during  the 
Mormon  war  it  was  eighteen  millions)  it  has  fallen  to  about 
two  and  a  quarter  millions  in  1877.  In  fact,  as  the  Govern- 
ment has  for  years  retained  the  whole  amount  and  not  paid  the 
roads  a  dollar,  it  should  be  more  properly  said  to  have  been 
absolutely  annihilated.  The  eight  millions  thus  annually 
saved,  if  counted  according  to  the  spirit  of  the  grant  as 
eight  millions  annually  repaid,  not  only  extinguishes  the 
interest  on  the  government  bonds,  but  the  principal  also  long 
before  maturity.  Nay  more.  We  have  already  seen  that  the 
saving  to  the  Government  during  the  seven  years   between 


664  The  Pacific  Railroads  and  the  Government.         [Sept., 

1869  when  the  road  was  opened  and  1874  the  time  fixed  for 
its  completion,  would  o£  itself  form  a  sinking  fund  sufficient 
to  pay  off  the  national  loan.  Yet  this  reduction  in  pub- 
lic expense,  so  far  from  being  credited  to  the  road  as  a 
sort  of  payment,  is  now  used  as  an  argument  to  show  that 
at  this  diminished  rate  of  earnings  from  government  service 
the  loan  will  never  be  paid  and  the  companies  must  therefore 
be  compelled  to  pay  more  than  the  contract  requires  at  what- 
ever loss  to  them,  or  risk  to  their  creditors. 

In  the  foregoing  review  of  the  act  of  1878,  and  the  proceed- 
ings of  Congress,  we  have  not  forgotten  that  under  the  acts  of 
1862  and  1864  an  obligation  was  imposed  upon  the  companies 
to  pay  the  government  loan,  principal  and  interest,  at  its 
maturity.  If  those  acts  specified  no  adequate  mode  of  provid- 
ing for  such  repayment,  it  was,  as  we  view  them,  because  Con- 
gress trusted  to  the  prudence  and  good  faith  of  the  companies 
to  make  such  provision  so  far  as  possible.  Should  they  fail  to 
do  so,  it  would  not  in  our  opinion  justify  the  alteration  of  the 
contract,  since  this  was  one  of  the  risks  taken  by  Congress,  as 
in  the  case  of  any  lender  who  takes  a  long  note  for  his  loan. 
Nevertheless,  any  unnecessary  neglect  to  make  such  provision, 
had  it  been  shown  by  the  companies,  would  have  gone  far  to 
deprive  them  of  any  just  sympathy  in  case  of  summary  treat- 
ment within  the  letter  of  the  law  and  the  contract.  It  is 
because  we  believe  the  action  of  Congress  in  the  premises  to 
have  been  both  illegal  and  unnecessary  that  we  have  felt  moved 
to  arraign  it.  The  propositions  submitted  by  the  corporations, 
and  by  the  Senate  Committee  on  Kail  roads,  were  either  of  them 
adapted  to  save  both  the*  money  of  the  Government  and  its 
honor,  and  even  if  the  country  had  not  already  reaped  full 
remuneration  and  tenfold  more  for  the  money  it  has  invested 
in  the  roads,  it  could  have  far  better  afforded  to  make  the  small 
concessions  of  time  which  those  propositions  contemplated  than 
to  violate  its  good  faith,  sacrifice  the  rights  of  property  and  con- 
tract, and  with  more  than  Shylock's  rapacity  alter  itsaps&ment 
in  order  to  grasp  an  advantage  "  not  nominated  in  the  bond."  In 
this  point  of  view  it  is  immaterial  whether  the  companies  were 
rich  enough  or  not  to  be  crippled  by  the  spoliation.  We  care  very 
little  whether  their  stock  and  securities  have  risen  or  fallen  in 


1878.]         The  Pacific  Railroads  and  the  Government.  665 

Wall  street  since  the  act  of  1878,  although  in  fact  the  passage  of 
that  act  has  caused  the  Union  Pacific  Company  to  suspend  its 
dividends.  Questions  of  right  and  wrong  are  independent  of 
such  considerations.  It  does  not  justify  a  breach  of  law  and 
justice,  to  insist  that  it  will  do  no  harm.  Still  more  absurd 
and  contemptible  is  it  to  parade  as  its  pretext  former  acts  of 
pretended  "generosity"  and  "munificence."  It  would  be  as 
sensible  and  as  decent  for  the  butcher  to  call  on  the  lamb  to 
submit  his  neck  gratefully  to  the  knife  in  consideration  of  the 
"generosity"  with  which  he  has  been  fattened  in  order  to  be 
availed  of  as  mutton. 

An  act  passed  at  the  same  session  of  Congress  as  supple- 
mental to  the  preceding,  which  establishes  a  board  for  auditing 
Pacific  Eailroad  accounts,  though  stringent  in  its  provisions  is 
not  open  on  principle  to  the  strictures  we  have  above  applied. 
The  statute  professes  for  its  object  to  secure  to  the  Government 
a  more  constant  and  thorough  inspection  of  the  Pacific  Eail- 
road accounts.  So  far  as  the  object  is  merely  to  ensure  a  strict 
and  faithful  compliance  with  existing  obligations,  and  not  to 
obtain  pretexts  for  future  alterations  of  the  original  contract, 
the  measure  is  unobjectionable,  even  if  unnecessary.  That  it 
was  unnecessary  we  have  no  sufficient  information  to  aver. 
That  it  was  needed  in  fact,  we  have  the  assurance  of  its 
originator,  Senator  Thurman ;  but  on  this  subject  at  least, 
Senator  Thurman  has  proved  himself  not  the  most  reliable 
authority.  In  the  debate  on  the  other  bill  he  maintained  that 
the  companies  had  already  justly  forfeited  their  charters  by  a 
persistent  failure  to  make  annual  returns  to  the  Secretary  of 
the  Treasury  of  various  items,  including  a  statement  of  their 
earnings,  expenses,  and  indebtedness,  as  required  by  the  act 
of  1862.     Warming  with  the  theme,  he  exclaimed, — 

"  Are  those  immaterial  matters  ?  I  will  not  stop  to  discuss  the  importance  of 
each  and  every  of  them  though  there  is  not  one  single  requirement  there  that  is 
not  important  as  I  could  easily  show.  But  take  the  last  three  which  are  intended 
to  require  each  company  to  make  a  sworn  statement  to  the  Government  so  that 
the  Government  may  know  that  it  gets  its  five  per  cent,  of  its  net  earnings  of 
the  road;  and  now,  what  is  the  fact?  Here  are  these  Companies  under  this 
obligation — these  Companies  who  have  received  such  immense  subsidies  from  the 
Government  in  lands  and  bonds,  who  never  to  this  day  have  complied  with  that 
section  of  the  law,  and  the  Government  cannot  tell  you  to-day  what  are  the  net 
earnings  of  these  railroad  companies.     I  hold  the  proof  in  my  hand." 

VOL.  I.  43 


666  The  Pacific  Railroads  and  the  Government         [Sept., 

Unfortunately  for  the  charge,  it  afterwards  appeared  and  was 
explained  to  the  Senator,  that  a  statute  passed  in  1868  required 
the  returns  to  be  made  thenceforward  to  the  Secretary  of  the 
Interior  instead  of  the  Secretary  of  the  Treasury,  and  that  in 
the  Interior  Department  all  the  reports  were  on  file,  regularly 
made  in  conformity  with  the  law. 

This  review  of  the  relations  between  the  Pacific  Kailroads 
and  the  Government,  especially  in  connection  with  the  proceed- 
ings at  the  late  session  of  Congress,  brief  as  it  is,  would  be  too 
incomplete  without  an  allusion  to  the  "pro  rata  controversy,"  in 
which  the  Union  Pacific  Company  was  for  years  arraigned 
before  Congress  and  the  public  as  a  glaring  and  undisputed 
violator  of  law  and  its  charter.  The  questions  involved  in  that 
controversy,  however,  we  must  forbear  to  discuss,  and  it  is  the 
less  necessary  as  a  recent  judicial  decision  has  settled  them  on 
their  merits.     A  mere  explanatory  statement  must  suffice. 

The  act  of  1864  required  that  "  the  several  Companies 
authorized  to  construct  the  aforesaid  roads  [viz.  the  main 
line  of  the  Pacific  Koad  and  its  feeders],  should  operate  and 
use  said  roads  and  telegraph  for  all  purposes  of  communication 
and  transportation  so  far  as  the  Government  and  the  public  are 
concerned  as  one  continuous  line,  and  in  such  operation  and 
use  should  afford  and  secure  to  each,  equal  facilities  as  to  rates, 
time,  and  transportation  without  any  discrimination  of  any  kind 
in  favor  of  the  road  or  business  of  any  or  either  of  said  Com- 
panies or  adverse  to  the  road  or  business  of  any  or  either  of 
them."  It  was  claimed  by  the  Kansas  Pacific  Road  (which  as  we 
have  seen  in  the  previous  article  is  a  competing  and  rival  road 
to  the  Union  Pacific  erected  against  the  remonstrance  of  the 
latter  out  of  one  of  its  tributary  feeders),  that  the  Union  Pacific 
Company  habitually  violated  this  legal  requirement  with  respect 
to  freight  and  passengers,  which  it  received  at  Cheyenne  from 
the  Kansas  Pacific  for  transportation  farther  west.  The  Union 
Pacific  Company  denied  the  charge  and  insisted  that  its  rates 
of  freight  and  fare  were  entirely  consistent  with  its  legal  obli- 
gations. The  dispute  between  the  roads  was  submitted  to  the 
Courts,  but  pending  the  suit  the  Kansas  Pacific  Company 
appealed  to  Congress  to  compel  the  Union  Pacific  Company  to 
accede  to   their  demands.     In   December,  1877,  the   United 


1878.]  The  Pacific  Railroads  and  the  Government.  667 

States  Senate  adopted  a  Resolution  which  assumed  that  the 
Union  Pacific  Company  was  habitually  violating  the  law  and 
inquired  of  the  President  "  what,  if  any,  impediments  existed 
which  prevented  him  from  compelling  that  Company  to 
observe  it."  The  Resolution  was  referred  by  the  President  to 
the  Attorney-General  and  the  Secretary  of  the  Interior,  who 
gave  the  parties  a  hearing.  In  their  report  to  the  President 
they  declined  to  accept  the  assumption  on  which  the  resolution 
was  based,  and  advised  that  "  the  questions  involved  were  judi- 
cial in  their  nature,  in  which  evidence  should  be  carefully  and 
elaborately  taken  and  the  true  construction  of  the  law  discussed, 
and  that  such  an  inquiry  was  already  pending  in  the  Courts." 
Notwithstanding  these  suggestions,  bills  were  prepared  by 
committees  both  of  the  Senate  and  the  House  in  accordance 
with  the  Kansas  Pacific  demands,  supported  by  the  public 
press,  to  compel  the  Union  Pacific  Company  "  to  comply  with 
the  provisions  of  its  charter  and  to  operate  its  road  and  branches 
as  one  continuous  line  without  discrimination."  These  bills 
were  still  under  discussion  as  late  as  May  8th,  1878,  and  with 
every  prospect  that  some  one  of  them  would  be  passed,  with 
little  if  any  opposition.  On  that  day,  however,  the  deci- 
sion of  the  United  States  Circuit  Court  upon  the  disputed 
questions  was  received.  The  Court  held  the  claim  of  the  Kan- 
sas Pacific  Company  to  be  untenable,  that  the  Union  Pacific 
Company  had  a  right  to  make  the  charges  complained  of,  and 
were  both  reasonable  and  fully  in  accordance  with  their  charter 
in  so  doing.  Its  language  is  clear  and  emphatic.  "These 
reasons  in  my  judgment  fully  justify  the  Union  Pacific  Road 
in  charging  a  greater  rate  for  transportation  of  persons  and 
property  west  of  Cheyenne  than  is  found  necessary  east  of  that 
point.  And  the  defendant  [the  Union  Pacific  Company]  is 
not  bound  to  transport  the  cars  of,  or  passengers  or  freight 
carried  by  the  plaintiff,  [the  Kansas  Pacific  Company]  from 
Cheyenne  to  Ogden  at  one-half  the  regular  through  rates  estab- 
lished by  the  defendant.  Neither  reason  or  justice  requires 
this  to  be  done.  Nor  can  I  believe  that  Congress  ever  intended 
to  impose  such  an  onerous  burden  on  the  defendant.  No 
reasonable  construction  of  the  law  will  lead  to  such  a  conclu- 
sion.    *     *     To  compel  the  defendant  to   do   what  is  here 


668  The  Pacific  Railroads  and  the  Government.         [Sept., 

asked  would  be  to  require  the  defendant  to  discriminate  in 
favor  of  the  other  roads,  and  against  its  own  material  interests. 
Such  a  result  was  never  contemplated  by  the  Government." 

The  controversies  between  the  Pacific  Railroads  and  the 
Government,  which  we  have  thus  hastily  reviewed,  illustrate  in 
a  striking  manner  the  inconvenience  and  the  dangers  arising  to 
both  parties  out  of  business  enterprises  in  which  the  Govern- 
ment and  private  persons  are  mutually  concerned.  The  only 
safety  for  either,  if  there  is  any  safety  at  all,  must  be  found  in 
such  a  complete  and  final  adjustment  of  their  several  relations, 
obligations,  and  rights,  as  to  take  the  subject  forever  out  of  the 
sphere  of  legislation  and  to  leave  all  questions  of  dispute,  where 
they  are  left  in  private  affairs,  to  the  adjudication  of  the  Courts. 
When  of  two  parties  to  a  contract,  one  claims  every  right,  even 
to  that  of  alteration  or  repudiation,  and  has  the  power  to  enforce 
it,  it  is  inevitable  in  the  nature  of  things  that  such  claim  will  be 
sooner  or  later  asserted  with  oppression  and  injustice.  Especially 
must  this  be  the  case  where  the  stronger  party  is  a  Government, 
and  more  than  all  a  democratic  government,  swayed  as  such 
governments  so  frequently  are  by  the  passions  and  prejudices 
and  selfish  or  sectional  interests  of  even  small  minorities  of  the 
general  public.  If  in  such  case  the  other  party  is  a  private  in- 
dividual there  may  be  a  chance  that  a  sense  of  sympathy  or  of 
justice  will  afford  a  measure  of  protection.  But  if  it  is  a  corpo- 
ration the  hope  of  forbearance  is  largely  diminished.  In  either 
case  the  exercise  of  power  on  the  one  side,  will  surely  sooner 
or  later  be  forestalled  or  averted  by  acts  of  corruption  on 
the  other,  and  the  greater  and  richer  the  weaker1  party  may  be, 
the  greater  the  evil  and  the  more  widespread  and  protracted 
the  danger.  Herein  lies  one  of  the  most  serious  of  the  many 
objections  to  the  legislation  of  1878,  which  we  have  been  con- 
sidering. By  asserting  an  unlimited  right  in  Congress  to  alter, 
amend,  or  repeal  at  its  will  the  contract  between  the  Govern- 
ment and  the  companies,  the  whole  subject  has  been  removed 
from  the  province  of  the  Courts  where  alone  it  can  properly  and 
safely  be  left,  and  the  foundation  has  been  laid  for  the  most 
enormous  scandals  of  contending  tyranny,  and  corruption,  aud 
for  stock  jobbing  legislation  of  the  most  flagrant  kind  that  have 
ever  been  known  in  our  history.    So  long  as  the  rights  or  privi- 


1878.]         The  Pacific  Railroads  and  the  Government.  669 

leges  of  the  companies  are  at  the  mercy  of  Congress,  politicians 
and  "  statesmen"  of  every  grade  will  be  sure  to  seize  their  oppor- 
tunities; political  parties  will  be  formed  and  bought  and  sold 
with  the  revenues  of  the  road,  and  eventually  that  great  and 
magnificent  enterprise,  now  a  pride  and  a  glory  to  the  nation, 
will  be  rather  associated  with  recollections  of  public  folly  and 
disgrace.  If  any  one  deems  these  imaginings  to  be  fanciful,  or 
overdrawn,  let  him  recall  the  history  of  the  United  States  Bank, 
its  connection  with  politicians,  and  parties,  and  party  scandals 
especially  in  its  later  days,  and  consider  what  all  this  would  have 
grown  to  had  that  institution  been  like  a  railroad  stretching 
across  the  continent,  incapable  of  annihilation,  an  indestructible, 
inexhaustible,  and  enormous  source  of  political  influence  and 
intrigue,  and  of  public  and  private  corruption. 

Whether  the  companies  will  contest  these  laws  in  the  Courts 
we  know  not,  and  with  that  we  have  nothing  to  do.  Our  pur- 
pose has  been  accomplished  in  reviewing  the  legislation  itself, 
and  in  calling  attention  to  its  wrongs  and  its  perils.  Through 
a  misapprehension  of  the  facts  in  the  public  mind  this  action 
of  Congress  has  not  received  the  attention  which  it  deserved 
and  it  has  been  generally  received  either  with  indifference  or 
approval.  We  feel  assured,  however,  that  when  the  facts  are 
known  and  the  measures  we  have  criticized  are  duly  considered, 
a  correct  public  sentiment  will  be  awakened  in  full  accord  with 
what  we  have  written. 


